Excluded Lenders v. Serta Simmons
U.S. Court of Appeals for the Fifth Circuit
Excluded Lenders v. Serta Simmons
Opinion
Case: 23-20181 Document: 233-1 Page: 1 Date Filed: 12/31/2024
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
December 31, 2024
No. 23-20181
____________ Lyle W. Cayce
Clerk
In re Serta Simmons Bedding, L.L.C.
Debtor,
Excluded Lenders; LCM Lenders,
Appellants,
versus
Serta Simmons Bedding, L.L.C.; Barings, L.L.C.; Boston
Management and Research; Credit Suisse Asset
Management, L.L.C.; Eaton Vance Management; Invesco
Senior Secured Management, Incorporated,
Appellees,
consolidated with
_____________
No. 23-20450
_____________
In re Serta Simmons Bedding, L.L.C.
Debtor,
Excluded Lenders; LCM Lenders,
Appellants,
Case: 23-20181 Document: 233-1 Page: 2 Date Filed: 12/31/2024
versus
Serta Simmons Bedding, L.L.C.; Barings, L.L.C.; Boston
Management and Research; Credit Suisse Asset
Management, L.L.C.; Eaton Vance Management; Invesco
Senior Secured Management, Incorporated,
Appellees,
consolidated with
_____________
No. 23-20363
_____________
In the Matter of Serta Simmons Bedding, L.L.C.,
Debtor,
Citadel Equity Fund, Limited,
Appellant,
versus
Serta Simmons Bedding, L.L.C.; SSB Manufacturing
Company; Dawn Intermediate, L.L.C.; Serta
International Holdco, L.L.C.; National Bedding
Company, L.L.C.; The Simmons Manufacturing Company,
L.L.C.; Dreamwell, Limited; SSB Hospitality, L.L.C.; SSB
Logistics, L.L.C.; Simmons Bedding Company, L.L.C.;
Tuft & Needle L.L.C.; Tomorrow Sleep, L.L.C.; SSB
Retail, L.L.C.; World of Sleep Outlets,
Appellees,
consolidated with
_____________
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No. 23-20451
_____________
Excluded Lenders,
Appellant,
versus
Serta Simmons Bedding, L.L.C.,
Appellee.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC Nos. 4:23-AP-9001, 4:23-BK-90020,
4:23-CV-1342, 4:23-CV-1344,
4:23-CV-2173
______________________________
Before Haynes, Willett, and Oldham, Circuit Judges.
Andrew S. Oldham, Circuit Judge:
Serta Simmons Bedding, LLC is an American company that makes
mattresses and other bedding products. In 2016 and 2020, Serta executed
financing deals with various lenders. Then Serta went bankrupt. The financ-
ing deals and bankruptcy proceedings generated four appeals, which we con-
solidated. Given the complexities, we will not even try to summarize our var-
ious holdings here. So read on.
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I
We begin with three points by way of background. We first describe
(A) relevant corporate-finance terms. Then we describe (B) the corporate-
finance transactions that gave rise to these appeals. Finally, we explain (C) the
litigation history.
A
Ratable treatment is an important background norm of corporate fi-
nance. Pursuant to this norm, a borrower must treat all of its similarly situated
lenders, well, similarly. See Vincent S.J. Buccola, Efficacious Answers to the
Non-Pro Rata Workout, 171 U. Pa. L. Rev. 1859, 1864–65 (2023); Diane Lourdes Dick, Hostile Restructurings,96 Wash. L. Rev. 1333
, 1349 (2021); Jackson Skeen, Note, Uptier Exchange Transactions: Lawful Innovation or Lender-on-Lender Violence?, 40 Yale J. Reg. 408, 413–14 (2023). Ratable treatment is such an important norm that it is often described as a lender’s “sacred right” under syndicated1 loan agreements. See, e.g., LCM XXII Ltd. v. Serta Simmons Bedding, LLC, No. 1:21-cv-03987,2022 WL 953109
, at *2
(S.D.N.Y. Mar. 29, 2022); Skeen, supra, at 413–14.
How does ratable treatment work? To illustrate it, imagine a borrower
with $150 million in debt distributed equally among five different lenders
(each holding $30 million in loans). The borrower then decides to retire one-
fifth or $30 million of this debt. The norm of ratable treatment provides that
the borrower may not choose to repay only one of its lenders. Rather, it must
_____________________
1
“Usually no single bank originates the entirety of a loan. Rather, multiple banks
syndicate under a lead arranger, each holding only a portion of the loan. Syndicated loans
are actively traded amongst financial institutions in a secondary market place, and pur-
chased on these markets by a range of investors, including institutional investors [and]
hedge fund managers . . . .” Loan Syndications & Trading Ass’n v. SEC, 882 F.3d 220, 223
(D.C. Cir. 2018) (quotation omitted).
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proportionally allocate that $30 million among the relevant lenders according
to their share of the outstanding debt. Thus lenders are treated equally, and
individual lenders are protected from potential machinations by the majority.2
Uptiers are a relatively new and controversial exception to the ratable-
treatment norm. They emerged during the COVID-19 pandemic, when dis-
tressed companies sought innovative ways to improve their financial posi-
tions. See Skeen, supra, at 410–17. They are controversial because, according
to critics, uptiers create a zero-sum game of “lender-on-lender violence.” Id.
at 410 (quotation omitted).
How does an uptier transaction work? The borrower amends the terms
of a credit facility to allow the issuance of new super-priority debt. Because a
majority of lenders in the existing facility must typically consent to such an
amendment, the borrower purchases consent by allowing these lenders to
exchange their existing debt for new super-priority debt, often at an above-
market price. See Buccola, Efficacious Answers, supra, at 1865; Dick, supra, at
1352. Since not all of the lenders participate in the uptier, the uptier is a non-
pro-rata transaction that violates the norm of ratable treatment.
The below figures ably depict two uptiers where a borrower issues
super-priority debt on top of existing first-lien debt which was previously
shared ratably (or pari passu):
_____________________
2
Importantly, the norm of ratable treatment applies to lenders within their respec-
tive credit facilities. If a borrower has three different classes of lenders, the borrower need
not treat a lender holding first-lien debt ratably with a lender holding third-lien debt.
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c/w Nos. 23-20363, 23-20450, 23-20451
Samir D. Parikh, Creditors Strike Back: The Return of the Cooperation Agree-
ment, 73 Duke L.J. Online 1, 14 (2023).
Vincent S.J. Buccola & Greg Nini, The Loan Market Response to Dropdown and
Uptier Transactions, 53 J. Legal Stud. 489, 501 (2024) (restyled).
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Like everything in corporate finance, the uptier has benefits and costs.
As to benefits, the borrower needs only majority (versus unanimous) consent
to complete an uptier transaction. That means the borrower can play lender
groups off of each other and avoid the expense of dealing with holdouts. See
Dick, supra, at 1369–70; Buccola, Efficacious Answers, supra, at 1875–76. And
the borrower can secure additional financing through the issuance of new
debt. See Vincent S.J. Buccola, Sponsor Control: A New Paradigm for Corporate
Reorganization, 90 U. Chi. L. Rev. 1, 35 (2023) (noting that uptiers “allow
distressed companies to access liquidity that might otherwise be available
only in and through bankruptcy”). In addition, the majority lenders often
improve their net position by jumping the creditor line, which is advanta-
geous in bankruptcy where debt claims are often resolved by seniority.
The costs of an uptier transaction are born entirely by the minority
lenders, who end up with subordinated debt worth less than before. See Bek
R. Sunuu, A Closer Look at How Uptier Priming Loan Exchanges Leave Excluded
Lenders Behind, S&P Glob. Ratings ( June 15, 2021), https://perma.cc/
6TBN-JMTT. Some have decried the uptier transaction as “a cannibalistic
assault by one group of lenders . . . against another.” Skeen, supra, at 410
(quotation omitted). Others have called uptiers “super-aggressive,” Stephen
J. Lubben, Holdout Panic, 96 Am. Bankr. L.J. 1, 20 (2022), “hostile restruc-
turings,” Dick, supra, at 1351, “acts of financial war,” Parikh, supra, at 6, and
“unthinkable under [pre-pandemic] commercial norms,” Buccola, Sponsor
Control, supra, at 34.
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B
We (1) describe SSB’s3 2016 syndicated loan agreement and its
ratable-sharing provision. Then we (2) describe SSB’s 2020 uptier trans-
action.
1
In 2016, SSB decided to refinance its debt through a series of syndi-
cated loans (the “2016 Refinancing”). Accordingly, SSB issued $1.95 billion
in first-lien syndicated loans and $450 million in second-lien syndicated
loans. SSB and its lenders made two credit agreements, one for each type of
loan. The key agreement here is the First Lien Term Loan Agreement (the
“2016 Agreement”).
The 2016 Agreement protects the sacred right of pro-rata sharing. As
relevant to this dispute, § 2.18 of the 2016 Agreement provides:
[E]ach Borrowing, each payment or prepayment of principal of
any Borrowing, each payment of interest in respect of the Loans
of a given Class and each conversion of any Borrowing . . . shall
be allocated pro rata among the Lenders in accordance with
their respective Applicable Percentages of the applicable Class.
ROA.23-20181.214. Under § 2.18, SSB cannot choose to pay its obligations
to one lender while offering nothing to the rest—the favored lender would
have to share the payment with the other lenders.
To further protect the sacred right of pro-rata sharing, § 9.02(b)(A)
generally requires unanimous consent of any affected lender to waive, amend,
or modify § 2.18 in any way that would “alter the pro rata sharing of payments
_____________________
3
Throughout this opinion, we use “SSB” to collectively refer to Serta Simmons
Bedding, LLC and its various owners and affiliates involved with this litigation, unless
articulated otherwise.
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required thereby.” ROA.23-20181.275–76. Thus, while most provisions of the
2016 Agreement can be changed with the approval of SSB and a simple ma-
jority of its lenders, the ratable sharing provision in § 2.18 is singled out for
special protection. If the parties to the 2016 Agreement want to change or
eliminate the ratable-sharing provision, they must do so unanimously—to
prevent SSB from repaying one lender to the prejudice of the others, and to
prevent a majority of the lenders from bargaining away the ratable-sharing
provision that protects all lenders.
The 2016 Agreement contains exceptions to the ratable-sharing provi-
sions, however. Only one is relevant to the present appeals, and it appears in
§ 9.05(g). That sub-section provides:
[A]ny Lender may, at any time, assign all or a portion of its
rights and obligations under this Agreement in respect of its
Term Loans to any Affiliated Lender on a non-pro rata basis
(A) through Dutch Auctions open to all Lenders holding the
relevant Term Loans on a pro rata basis or (B) through open
market purchases . . . .
ROA.23-20181.287. The 2016 Agreement defines “Affiliated Lender” to in-
clude SSB.4 Thus, § 9.05(g) provides two ways by which SSB can repay its
loans without ratable sharing between lenders.
The first is a Dutch auction open to all lenders, the procedures for
which are comprehensively laid out in the 2016 Agreement. See La. Stadium
& Exposition Dist. v. Fin. Guar. Ins. Co., 701 F.3d 39, 42 (2d Cir. 2012)
_____________________
4
The Agreement defines “Affiliated Lender” as “any Non-Debt Fund Affiliate,
Holdings, the Top Borrower and/or any subsidiary of the Top Borrower.” ROA.23-
20181.141. “Top Borrower” is SSB. See ROA.23-20181.134. “Holdings” is Dawn Inter-
mediate, Inc., ROA.23-20181.134, which appears to be SSB’s parent organization, see SSB
Red Brief in 23-20181 at 13. And “Non-Debt Fund Affiliate” is “any Investor (which is an
Affiliate of the Top Borrower) and any Affiliate of any such Investor.” ROA.23-20181.180.
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(explaining procedure for a Dutch auction); see also Dutch Auction, Black’s
Law Dictionary (12th ed. 2024) (“An auction in which property is ini-
tially offered at an excessive price that is gradually lowered until the property
is sold.”). In a Dutch auction, the “Auction Party” (here, SSB) gives notice
to its lenders that it wants to purchase a particular amount of its outstanding
loans at a certain price relative to par. Lenders wishing to participate may re-
ply with the amount of loans that they are willing to “sell” and at what price.
If the amount and price in the notice match up with the amounts and prices
in the replies, the Auction is conducted by sale at the lowest price to the Auc-
tion Party. If not, there is either a “Failed Auction” or the Auction Party can
amend its notice offer and conduct the Auction at the lowest price necessary
to complete a sale. Thus, the Dutch auction provides a mechanism by which
SSB can leverage open competition among its lenders to retire its debt at the
lowest possible price. And assuming that every lender did not offer all of their
loans at the same exact price, the expected effect of a completed Dutch auc-
tion is non-pro-rata repayment, since only the lenders who offered the cheap-
est loans will be paid.
The second exception is an “open market purchase[].” ROA.23-
20181.287. The 2016 Agreement does not define or discuss the term “open
market purchase.” The 2016 Agreement’s deafening silence on “open market
purchase” stands in sharp contrast to the meticulous definition it provides
for a Dutch auction. And it is the patent ambiguity in the undefined term that
forms the foundation of this case.
2
In the years after the 2016 Refinancing, SSB struggled. When the
COVID-19 pandemic threatened to drag SSB down even further, the com-
pany sought to bolster its financial position.
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It chose an uptier. In 2020, SSB signed an uptier agreement (the
“2020 Uptier”) with some (but not all) of the lenders holding first-lien and
second-lien debt issued in the 2016 Refinancing (the “Prevailing Lenders”).5
The Prevailing Lenders provided SSB with $200 million in new financing in
exchange for $200 million in first-out, super-priority debt. The Prevailing
Lenders also traded in $1.2 billion of their first-lien and second-lien loans for
approximately $875 million in second-out, super-priority debt. The upshot of
these moves was that SSB gained cash and lowered its overall debt load,
while the Prevailing Lenders slashed the nominal value of their holdings
(which were trading far below par) to jump the creditor line and get paid be-
fore their erstwhile first and second-lien comrades.
The 2020 Uptier was controversial from its inception.6 So to shore up
the deal in anticipation of future litigation, SSB and the Prevailing Lenders
took the following steps.
First, SSB and the Prevailing Lenders amended the 2016 Agreement
to allow the 2020 Uptier. SSB and the Prevailing Lenders were able to do
that because the Prevailing Lenders held a bare majority of the outstanding
first-line debt.
_____________________
5
We refer to these lenders as the “Prevailing Lenders,” because that is how they
characterize themselves in the briefing before this court. See Prevailing Lenders Red Brief
in 23-20181 at 1. But see Excluded Lenders Blue Brief in 23-20181 at 8 (referring to the “fa-
vored lenders”). We take the same approach to nomenclature with the other lender groups.
In the record, however, the Prevailing Lenders are often referred to as the “PTL Lenders.”
See, e.g., ROA.23-20451.1266.
6
See, e.g., Buccola & Nini, supra, at 502 (asserting that the SSB transaction had
“little precedent”); see also Buccola, Sponsor Control, supra, at 35 (observing that priming
transactions like the Uptier “often hinge on dubious claims of legal right and almost always
flout well-established norms”).
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Second, SSB and the Prevailing Lenders labeled the 2020 Uptier an
“open market purchase,” one of the two § 9.05(g) exceptions to pro-rata shar-
ing. To wit, one of the contracts that formed the basis for the 2020 Uptier
was termed the “Open Market Purchase and Cashless Exchange Agree-
ment.” SSB and the Prevailing Lenders did so apparently in recognition that
the 2016 Agreement’s ratable-sharing provision would otherwise bar the
2020 Uptier.
Finally, perhaps recognizing the risk of the 2020 Uptier, SSB agreed
to indemnify the Prevailing Lenders for any and all losses, claims, damages
and liabilities which they might incur in connection with their participation.
See ROA.23-20451.764–65 (providing indemnification whether future litiga-
tion was based in “contract, tort or any other theory”). Such indemnification
would be payable by SSB within 30 days of a written demand to fulfill its
obligations.
C
In January 2023, SSB filed for bankruptcy under Chapter 11 in the
Southern District of Texas. SSB also filed an adversary proceeding to the
main Chapter 11 proceeding. We discuss (1) the adversary proceeding and
then (2) the main bankruptcy proceeding.
1
First, the adversary proceeding.
On January 24, 2023, SSB and some (but not all) of the Prevailing
Lenders (the “Prevailing Lender plaintiffs”) filed an action for declaratory
relief against a number of lenders who held debt from the 2016 Refinancing
but did not participate in the 2020 Uptier. The gist of this claim was that the
Prevailing Lender plaintiffs wanted the bankruptcy judge’s blessing of the
2020 Uptier and its assurance that the Prevailing Lenders did not violate the
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c/w Nos. 23-20363, 23-20450, 23-20451
2016 Agreement’s ratable-sharing provision. As relevant here, the defendants
in this declaratory-relief suit included two groups of first-lien lenders who did
not get super-priority loans in the 2020 Uptier and who instead objected to
the “lender-on-lender violence” perpetuated by the Prevailing Lenders. See
Skeen, supra, at 410 (quotation omitted). Like the parties, see supra n.5, we
refer to these objecting lenders as the “Excluded Lenders” and the “LCM
Lenders.”
In their adversary proceeding against the Excluded Lenders and the
LCM Lenders, SSB and the Prevailing Lender plaintiffs sought a declaration
that the 2020 Uptier (a) was permitted under the terms of the 2016 Agree-
ment and (b) did not violate the implied covenant of good faith and fair deal-
ing. The bankruptcy court granted partial summary judgment to SSB and the
Prevailing Lender plaintiffs. As relevant here, the bankruptcy court held that
the term “open market purchase” was “clear and unambiguous,” and the
2020 Uptier was a valid “open market purchase” under the exception to pro-
rata sharing provided for in § 9.05(g) of the 2016 Agreement. ROA.23-
20181.6277–78. The bankruptcy court certified its decision for appeal to this
court. 28 U.S.C. § 158(d)(2). A panel of our court also granted the Excluded
Lenders and the LCM Lenders permission to appeal.
After the bankruptcy court’s partial final judgment was appealed to
our court, all that remained pending in the adversary proceeding were various
counterclaims and third-party claims by the Excluded Lenders and the LCM
Lenders. Again, the bankruptcy court sided with the Prevailing Lender plain-
tiffs. See In re Serta Simmons Bedding, LLC, No. 23-90020, 2023 WL
3855820, at *12–14 (Bankr. S.D. Tex. June 6, 2023). Having resolved all claims, the bankruptcy court then entered final judgment in the adversary proceeding. The parties jointly agreed to certify the post-trial final judgment to this court, see28 U.S.C. § 158
(d)(2), and a panel granted a subsequent mo-
tion for permission to appeal.
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2
Next, the main proceeding.
On January 23, 2023, SSB filed a proposed plan for Chapter 11 reor-
ganization. Section 8.5 of that plan was titled “Survival of the Debtors’ In-
demnification Obligations” and provided for the survival of SSB’s earlier
promise to indemnify the Prevailing Lenders for their participation in the
2020 Uptier.7 See supra, at 12. Section 8.5(b) characterized such obligations
as “executory contracts” which were assumed under the proposed plan and
would continue as obligations of the Reorganized Debtors.
On March 16, the Prevailing Lender plaintiffs filed proofs of claims
against SSB, including claims for indemnification and contribution. The Ex-
cluded Lenders objected and argued that such claims were contingent claims
for reimbursement disallowed by 11 U.S.C. § 502(e)(1)(B). Another creditor,
Citadel Equity Fund Ltd. (“Citadel”), joined that objection.
On May 9, SSB filed a first amended plan for reorganization. The first
amended plan contained indemnification obligations functionally identical to
the initial plan. But five days later, on the eve of the confirmation hearing,
SSB filed a modified first amended plan. That plan still contained a Section
8.5 titled “Survival of the Debtors’ Indemnification Obligations.” And it still
_____________________
7
See ROA.23-20451.1266 (“[A]ny Indemnification Obligation to indemnify the
PTL Lenders with respect to all present and future actions, suits, and proceedings against
the PTL Lenders or their respective Related Parties in connection with or related to the
Adversary Proceeding, the Apollo Proceeding, the LCM Proceeding, and/or any other
claims, proceedings, actions, or causes of action in connection with or related to the PTL
Credit Agreement, the Exchange Agreement, the Intercreditor Agreements, and/or the
2020 Transaction shall (a) remain in full force and effect, (b) not be discharged, impaired,
or otherwise affected in any way, including by the Plan, the Plan Supplement, or the Con-
firmation Order, (c) not be limited, reduced or terminated after the Effective Date, and (d)
survive unimpaired and unaffected irrespective of whether such Indemnification Obliga-
tion is owed for an act or event occurring before, on or after the Petition Date . . . .”).
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provided indemnification “on the same terms and limitations as afforded under
the [2020 Uptier contracts].” ROA.23-20363.17657 (emphasis added). But
the nature of the indemnification obligation was slightly different because the
obligations arose only after the effective date of the plan.
On May 23, the penultimate day of the confirmation hearing, SSB
filed its final second amended plan. This time, SSB’s indemnity did not
cover all of the Prevailing Lenders involved with the 2020 Uptier. Rather, the
plan’s final indemnity applied to all creditors holding Class 3 and Class 4
claims in SSB’s bankruptcy, as of the effective date of the plan ( June 29,
2023). ROA.23-20363.18748. The upshot? The indemnity covered the Pre-
vailing Lenders that participated in the 2020 Uptier and that continued to
hold super-priority debt from the uptier transaction (i.e., Class 3 creditors).
The indemnity did not cover any Prevailing Lender that participated in the
2020 Uptier and sold its super-priority debt before June 29, 2023. Instead,
the indemnity covered other entities—like Citadel—which did not partici-
pate in the 2020 Uptier transaction but which later purchased the super-pri-
ority debt on secondary markets (i.e., Class 4 creditors).
The bankruptcy court then held a trial to consider confirmation of the
Chapter 11 reorganization plan and resolve the adversary proceeding. See
Serta Simmons Bedding, 2023 WL 3855820, at *7. During the trial, SSB and the Prevailing Lender plaintiffs agreed that the indemnity originally provided for in the 2020 Uptier and maintained by the first two reorganization plans (the “pre-petition indemnity”) should be disallowed. See id. at *10. But they argued that the modified indemnity in the final plan (the “settlement indem- nity”) could be justified as a new indemnity and part of a settlement between SSB and some of its creditors to gain approval for plan confirmation. See11 U.S.C. § 1123
(b)(3). In support of this argument, multiple witnesses pre-
sented by the Prevailing Lender plaintiffs asserted that they would not have
voted in favor of the plan without the settlement indemnity. See, e.g., ROA.23-
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20363.3151 (one of SSB’s directors asserting that the settlement indemnity
was necessary to induce Prevailing Lenders to “participate and support the
[Chapter 11] restructuring”).
The bankruptcy court again agreed with SSB and the Prevailing
Lender plaintiffs, finding that the settlement indemnity was a fair and equita-
ble component of a § 1123(b)(3) settlement. See Serta Simmons Bedding, 2023
WL 3855820, at *10. Overruling related objections by the Excluded Lenders
and Citadel, the bankruptcy court confirmed the second amended plan—in-
demnity and all (hereafter the “Plan”). The bankruptcy court also certified
the confirmation order for direct appeal to this court. Motions panels granted
subsequent motions for permission to appeal and to consolidate the Excluded
Lenders and Citadel’s related indemnity appeals (under case numbers 23-
20451 and 23-20363, respectively). A panel also granted a motion to intervene
by the Prevailing Lender plaintiffs.
*
In sum, this consolidated appeal involves four cases: Numbers 23-
20181, 23-20450, 23-20451, and 23-20363.8 Our discussion proceeds as fol-
lows. In Part II, we discuss jurisdiction. In Part III, we discuss the two cases
that arose from the adversary proceeding and that relate to the validity of the
2020 Uptier as an open market purchase: the Excluded and LCM Lenders’
appeal from the bankruptcy court’s partial summary judgment (23-20181)
and the Excluded and LCM Lenders’ appeal from the post-trial final judg-
ment (23-20450). Then in Part IV, we discuss the two cases that arose from
the main Chapter 11 proceeding and that relate to the validity of the contested
_____________________
8
The cases were originally consolidated in two pairs: the open market purchase
cases (Nos. 23-20181 & 23-20450) and the plan indemnity cases (Nos. 23-20451 & 23-
20363). We consolidated all four cases for oral argument and now consolidate them for res-
olution. Fed. R. App. P. 3(b)(2).
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Plan indemnity: the Excluded Lenders’ appeal from the confirmation order
(23-20451) and Citadel’s appeal from the confirmation order (23-20363).
II
“Jurisdiction is always first.” Carswell v. Camp, 54 F.4th 307, 310 (5th
Cir. 2022) (quotation omitted). We first (A) discuss the jurisdictional issues
related to the two open market purchase cases, before (B) turning to the ju-
risdictional issues related to the two Plan indemnity cases. Then we dismiss
the LCM Lenders from the appeal in No. 23-20450.
A
With respect to the open market purchase cases (Nos. 23-20181 & 23-
20450), we first (1) discuss the bankruptcy court’s jurisdiction. We then
(2) discuss our appellate jurisdiction. Finally, we consider specific jurisdic-
tional issues involving (3) the Excluded Lenders and (4) the LCM Lenders.
1
First, the bankruptcy court’s jurisdiction in Nos. 23-20181 and 23-
20450. The bankruptcy court entered final judgment in both appeals. In No.
23-20181, the bankruptcy court entered partial final judgment on the claim
seeking a declaratory judgment that the 2020 Uptier was an open market pur-
chase permitted by the 2016 Agreement. In No. 23-20450, the bankruptcy
court entered final judgment on the Excluded and LCM Lenders’ claims and
counterclaims for breach of contract and breach of the implied covenant of
good faith and fair dealing. The bankruptcy court had both (a) statutory and
(b) constitutional authority to enter such judgments.
a
Under federal law, bankruptcy courts may enter final judgments in
cases under title 11, or in core proceedings arising under title 11 or arising in
a case under title 11. 28 U.S.C. § 157(b)(1). Core proceedings include, inter
17
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
alia, “matters concerning the administration of the estate,” the “allowance
or disallowance of claims against the estate,” “determinations as to the dis-
chargeability of particular debts,” and “determinations of the validity, extent,
or priority of liens.” 28 U.S.C. § 157(b)(2)(A), (B), (I), & (K).
As a matter of statutory authority, the bankruptcy court was on solid
ground in both open market purchase cases. In No. 23-20181, the declaratory
judgment claim was brought in anticipation of potential claims against SSB
and the Prevailing Lender plaintiffs regarding a breach of the 2016 Agreement
and the priority of liens relevant to SSB’s Chapter 11 proceeding.9 Such
claims touch on the administration of the estate, the allowance of claims
against the estate, the determination as to the discharge of particular debts,
and the determination of the validity, extent, or priority of liens. See 28 U.S.C.
§ 157(b)(2)(A), (B), (I), & (K). Because the claims would thus constitute a core proceeding under28 U.S.C. § 157
(b)(2), the bankruptcy court had stat-
utory authority to enter partial final judgment in No. 23-20181.
In No. 23-20450, the Excluded and LCM Lenders brought counter-
claims and third-party claims for breach of contract and breach of the implied
covenant of good faith and fair dealing. For much the same reasons as stated
above, such claims were part of a core proceeding under § 157(b)(2), so the
_____________________
9
While the Declaratory Judgment Act did not create a new source of subject matter
jurisdiction, see Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667(1950), federal courts have regularly exercised jurisdiction over declaratory judgment suits in which the declara- tory defendant could have brought a coercive federal action against the declaratory plaintiff. See Richard H. Fallon, Jr., et al., Hart and Wechsler’s The Federal Courts and the Federal System 842–43 (7th ed. 2015) (citing Franchise Tax Bd. v. Constr. Laborers Vacation Tr. for S. Calif.,463 U.S. 1, 19
(1983)); see also MedImmune, Inc. v. Genentech, Inc.,549 U.S. 118, 127
(2007) (asking whether “there is a substantial contro-
versy, between parties having adverse legal interests, of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment”).
18
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
bankruptcy court had statutory authority to enter final judgment in No. 23-
20450.
b
Even where federal law allows a bankruptcy court to enter final judg-
ment in a core proceeding, the Constitution may not. See Stern v. Marshall,
564 U.S. 462, 482(2011). Generally, a non–Article III court may enter a final judgment only when the relevant claim falls within the “public rights” excep- tion. Seeid.
at 487–88. That exception applies to, inter alia, claims that exist only by grace of Congress or the President, historically could have been de- termined exclusively by the Legislative or Executive branches, flow from a federal statutory or regulatory scheme, or depend completely on the adjudi- cation of a claim created by federal law.Id.
at 488–95 (collecting cases).
The relevant claims in Nos. 23-20181 and 23-20450 do not fall within
the public rights exception. The declaratory judgment claim in No. 23-20181
is based on potential claims for breach of contract—a prototypical state-law
claim between “two private parties.” Cf. Stern, 564 U.S. at 493. The Excluded and LCM Lenders’ counterclaims and third-party claims in No. 23-20450 are for breach of contract and breach of the implied covenant of good faith and fair dealing, which are again, ordinary state-law claims between private parties. Seeibid.
Since these claims have no connection with the federal
branches or federal law, Stern would appear to bar their adjudication by the
bankruptcy court.
But the Supreme Court recognizes a major exception to the public
rights doctrine: consent. Claims otherwise barred by Stern may be adjudi-
cated by bankruptcy courts where parties have expressly or impliedly con-
sented to their jurisdiction. Wellness International Network, Limited v. Sharif,
575 U.S. 665, 683–85 (2015); see also CFTC v. Schor,478 U.S. 833
, 848–49
(1986) (“[A]s a personal right, Article III’s guarantee of an impartial and
19
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
independent federal adjudication is subject to waiver, just as are other per-
sonal constitutional rights that dictate the procedures by which civil and
criminal matters must be tried.”). The Wellness Court articulated the key in-
quiry with respect to implied consent: “whether the litigant or counsel was
made aware of the need for consent and the right to refuse it, and still volun-
tarily appeared to try the case before the non-Article III adjudicator.” Well-
ness, 575 U.S. at 685(quotation omitted). The Wellness Court also stressed the importance of pragmatic values like “increasing judicial efficiency and check- ing gamesmanship.”Ibid.
The Wellness exception for consent cures the Stern problems for the
open market purchase cases. In No. 23-20181, the parties explicitly consented
to the bankruptcy court’s entry of partial final judgment. And in No. 23-
20450, the bankruptcy court found that the Excluded Lenders’ impliedly
consented to its authority by requesting that it enter summary judgment. See
Serta Simmons Bedding, 2023 WL 3855820, at *8. Moreover, the Excluded Lenders failed to object at the summary judgment stage, before trial, and at trial.Ibid.
Reviewing this finding for clear error, see Saenz v. Gomez,899 F.3d 384, 391
(5th Cir. 2018), and in light of considerations like “judicial effi- ciency” and “checking gamesmanship,” see Wellness,575 U.S. at 685
, the bankruptcy court did not err when it found that the Excluded Lenders implic- itly consented to non-Article III adjudication. See alsoibid.
(emphasizing the
“deeply factbound” nature of the consent analysis).10 The bankruptcy court
_____________________
10
The gamesmanship consideration has particular weight in this case. The Ex-
cluded and LCM Lenders agreed that the bankruptcy court could enter final judgment on
the declaratory judgment issue of whether the 2020 Uptier was permitted under the open
market purchase exception in the 2016 Agreement. Those parties cannot now pivot to ar-
gue that the bankruptcy court lacks authority to adjudicate claims that almost entirely de-
pend on whether the 2020 Uptier was permitted under the open market purchase exception
in the 2016 Agreement. That is the sort of litigation gamesmanship plainly covered by Well-
ness.
20
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
did not specifically find that the LCM Lenders consented to its authority to
enter final judgments. See Serta Simmons Bedding, 2023 WL 3855820, at *8. But given the LCM Lenders’ consent for the bankruptcy court to enter par- tial final judgment on the declaratory judgment claim, the connection be- tween that claim and the LCM Lenders’ counterclaims, and Wellness’s dis- cussion of efficiency and gamesmanship, see575 U.S. at 685
, we hold that the
LCM Lenders implicitly consented to non-Article III adjudication. Conse-
quently, the bankruptcy court could constitutionally enter final judgment in
No. 23-20450.
2
Under 28 U.S.C. § 158(d), this court has jurisdiction over direct ap-
peals from bankruptcy court final judgments, where either the bankruptcy
court or all the relevant parties certify the direct appeal, and where this court
authorizes it. In No. 23-20181, the bankruptcy court certified the judgment
for direct appeal and a panel of this court granted authorization. In No. 23-
20450, all the relevant parties jointly certified the judgment for direct appeal
and a panel of this court granted authorization. Accordingly, this court has
appellate jurisdiction over both open market purchase appeals.
3
In No. 23-20181, SSB and the Prevailing Lender plaintiffs argue that
the Excluded Lenders did not file a valid notice of appeal from the partial final
judgment. As the argument goes, Federal Rule of Bankruptcy Procedure
8006(a) provides that a certification for direct appellate review is effective
when a timely appeal has been taken under Federal Rule of Bankruptcy Pro-
cedure 8003. Fed. R. Bankr. P. 8006(a)(2). Rule 8003(a)(3)(B) in turn
states in relevant part that a notice of appeal must “be accompanied by the
judgment . . . from which the appeal is taken . . . .” Fed. R. Bankr. P.
8003(a)(3)(B). But the Excluded Lenders’ notice of appeal from the partial
21
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
final judgment order did not attach the judgment. Citing In re Cleveland Im-
aging & Surgical Hospital, LLC, 26 F.4th 285, 293 (5th Cir. 2022), SSB and
the Prevailing Lender plaintiffs argue that we lack jurisdiction over the Ex-
cluded Lenders’ summary judgment appeal.
We disagree. As the Supreme Court has held time and time again, the
Federal Rules “do not create or withdraw federal jurisdiction.” Kontrick v.
Ryan, 540 U.S. 443, 453(2004) (citing Owen Equip. & Erection Co. v. Kroger,437 U.S. 365, 370
(1978)); see alsoid.
at 453–54 (citing other authorities). To the contrary, Congress alone can enact procedural requirements with juris- dictional consequences. See, e.g., Harrow v. Dep’t of Def.,144 S. Ct. 1178
, 1182–83 (2024); MOAC Mall Holdings LLC v. Transform Holdco LLC,143 S. Ct. 927
, 935–36 (2023); Boechler, P.C. v. Comm’r of Internal Revenue,142 S. Ct. 1493
, 1497 (2022). Because the Federal Rules of Bankruptcy Procedure are promulgated by the Supreme Court, and because Rule 8003(a)(3)(B) does not follow from a clear federal statute, cf. Bowles v. Russell,551 U.S. 205
, 210– 11 (2007), a failure to attach the appealed-from judgment is not a jurisdic- tional defect. Properly understood, Rule 8003(a)(3)(B) is merely a claims- processing rule. See Kontrick,540 U.S. at 454
. And as a claims-processing rule, it can be forfeited. Seeid. at 456
. Here, SSB and the Prevailing Lender
plaintiffs did not oppose the Excluded Lenders’ motion for permission to ap-
peal the bankruptcy court’s decision. Instead, they waited to raise their ob-
jection until five months after our motions panel granted authorization for the
appeal. Having slept on their objection, they have forfeited it.
And in any event, a failure to attach the judgment is not a fatal defect
under Rule 8003. Rule 8003(a)(3)(B) requires that the notice of appeal be ac-
companied by the appealed-from judgment. See Fed. R. Bankr. P.
8003(a)(3)(B). But Rule 8003(a)(2) clarifies that the “failure to take any step
other than the timely filing of a notice of appeal does not affect the appeal’s
validity, but is ground only for the [reviewing court] to act as it considers
22
Case: 23-20181 Document: 233-1 Page: 23 Date Filed: 12/31/2024
No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
appropriate, including dismissing the appeal.” Fed. R. Bankr. P.
8003(a)(2). Since a failure to attach the appealed-from judgment is not a fail-
ure to timely file the notice of appeal, such a failure does not mandate dismis-
sal. See In re CPDC Inc., 221 F.3d 693, 698(5th Cir. 2000) (“As the language of the rule makes clear, only the failure to file a notice of appeal, which de- prives the reviewing court of jurisdiction, mandates dismissal.”). For other filing defects, we must “exercise discretion and consider what sanctions are appropriate.”Id. at 699
. Here, the Excluded Lenders’ notice of appeal desig-
nated the overall docket number, the specific docket entry, and the date of the
bankruptcy court’s partial final judgment order—so there was no confusion
about the scope of the appeal. Accordingly, the panel exercises its discretion
to not dismiss the Excluded Lenders’ appeal in No. 23-20181.
Cleveland Imaging is not to the contrary. That case arose under
§ 158(a), not § 158(d)(2)(A). An appeal under § 158(a) “shall be taken in the
same manner as appeals in civil proceedings generally are taken to the courts
of appeals from the district courts”—which requires the filing of a notice of
appeal. 28 U.S.C. § 158(c)(2); see28 U.S.C. § 2107
(a); Fed. R. App. P.
3(a)(1). Likewise, Bankruptcy Rule 8003(a)(1) requires a notice of appeal for
§ 158(a) appeals. That explained the jurisdictional holding in Cleveland Imag-
ing. But the same requirements do not apply to certified appeals under
§ 158(d)(2)(A).
4
The final jurisdictional issue in the open market purchase cases con-
cerns the LCM Lenders’ participation in No. 23-20450. In the adversary
proceeding, the LCM Lenders filed counterclaims against SSB and the Pre-
vailing Lender plaintiffs for breach of contract and breach of the implied cov-
enant of good faith and fair dealing. After a trial, the bankruptcy court denied
these claims, see Serta Simmons Bedding, 2023 WL 3855820, at *14, and the
23
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
LCM Lenders noticed an appeal (No. 23-20450) from the post-trial final
judgment. Then, on appeal and in a document supporting the Excluded
Lenders’ motion to adopt briefs from 23-20181, the LCM Lenders stated as
follows:
6. In this instant appeal, the LCM Lenders do not challenge the
adverse ruling on the implied covenant claim . . . or on the separate
contract claims . . . . The LCM Lenders noticed this appeal
solely as a protective matter, given that the bankruptcy court en-
tered final judgment following trial, in order to preserve their
rights on the open-market-purchase claim, which (as noted) were
earlier subject to a notice of appeal upon entry of a partial judg-
ment.
No. 23-20450, ECF 62, at 3 (emphasis added).
This statement carries jurisdictional consequences. Because the bank-
ruptcy court had already entered summary judgment on the open market pur-
chase issue, the trial only concerned (1) plan confirmation, and (2) the coun-
terclaims and third-party claims for breach of contract and breach of the im-
plied covenant of good faith and fair dealing. See In re Serta Simmons Bedding,
2023 WL 3855820, at *8–14. Having explicitly abandoned their denied claims
for breach of contract and breach of the implied covenant of good faith and
fair dealing, the LCM Lenders have nothing left to appeal in No. 23-20450.
The proper response to such abandonment is dismissal. For the fed-
eral courts decide “Cases” and “Controversies,” U.S. Const. art III, § 2,
cl. 1, and do not issue advisory opinions which cannot provide binding relief,
see, e.g., Letter from John Jay, C.J. & Assoc. JJ., U.S. Sup. Ct., to George Wash-
ington, President (Aug. 8, 1793), in 3 The Correspondence and Pub-
lic Papers of John Jay 488, 488–89 (Henry P. Johnston ed., 1891);
California v. Texas, 593 U.S. 659, 673(2021); see also Samuel L. Bray & Wil- liam Baude, Proper Parties, Proper Relief,137 Harv. L. Rev. 153
, 155 (2023)
24
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
(“Article III requires the proper parties, seeking proper relief…”). Having
abandoned their claims on appeal in No. 23-20450, there is no longer any live
dispute between the LCM Lenders and SSB and the Prevailing Lender
plaintiffs. The LCM Lenders are not proper parties in No. 23-20450, so we
dismiss them from that appeal.
B
With respect to the Plan indemnity cases (Nos. 23-20451 & 23-20363),
we first (1) discuss the bankruptcy court’s jurisdiction. We then (2) discuss
our appellate jurisdiction. Finally, we (3) reject SSB’s and the Prevailing
Lenders plaintiffs’ arguments about the appellants’ notices of appeal.
1
First, the bankruptcy court’s jurisdiction in Nos. 23-20451 and 23-
20363. Both appeals arise from the bankruptcy court’s final order confirming
the Plan. We therefore assess whether the bankruptcy court had statutory and
constitutional authority to enter such an order.
The statutory analysis is straightforward. Bankruptcy courts may en-
ter final orders in cases under title 11, or in core proceedings arising under
title 11 or arising in a case under title 11. 28 U.S.C. § 157(b)(1). Core proceed- ings include the confirmation of plans.Id.
at § 157(b)(2)(L); In re Prescription Home Health Care, Inc.,316 F.3d 542, 547
(5th Cir. 2002). The final order
confirmed the Plan, so the bankruptcy court had statutory authority to enter
it.
And under Stern, the entry of a Chapter 11 confirmation order quali-
fies for the public rights exception to non-Article III adjudication. See 564
U.S. at 488–99. Stern suggested that a bankruptcy court can decide matters
that “stem[] from the bankruptcy itself or would necessarily be resolved in
the claims allowance process.” Id. at 499. Here, the confirmation order is
25
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
directly related to the bankruptcy and was likely the main reason why SSB
filed a Chapter 11 petition in the first place. Furthermore, the Chapter 11
route to confirmation of a reorganization plan is not one that “exists without
regard to any bankruptcy proceeding,” see id. at 499; to the contrary, it is one
“created by federal bankruptcy law,” id. at 498; see also id. at 499 (asking
whether a claim is “derived from or dependent upon bankruptcy law”).
Therefore, the bankruptcy court had constitutional authority to enter the
confirmation order.11
2
Under 28 U.S.C. § 158(d), this court has jurisdiction over direct ap-
peals from bankruptcy court final orders, where either the bankruptcy court,
district court, or all the relevant parties certify the direct appeal, and where
this court authorizes it. The bankruptcy court certified its confirmation order
for direct appeal and a panel of this court granted authorization. Accordingly,
we have appellate jurisdiction over both of the Plan Indemnity appeals.
3
Before this court, SSB and the Prevailing Lender plaintiffs filed a mo-
tion to dismiss the appeal in both No. 23-20451 (the Excluded Lenders) and
No. 23-20363 (Citadel). Following their argument in No. 23-20181, the ap-
pellees emphasize that the Excluded Lenders and Citadel failed to attach the
bankruptcy court’s confirmation order to their notices of appeal. See Fed.
_____________________
11
True, the Supreme Court has repeatedly said it has never held that the “restruc-
turing of debtor-creditor relations”—such as was accomplished in the bankruptcy court’s
confirmation order—“is in fact a public right.” Stern, 564 U.S. at 492n.7 (quoting Granfi- nanciera, S.A. v. Nordberg,492 U.S. 33
, 56 n.11 (1989)). But until the Court gives more
direction in this area, we decline to hold that the confirmation of a Chapter 11 plan—a core
element of federal bankruptcy law—is beyond the adjudicative authority of federal bank-
ruptcy courts.
26
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
R. Bankr. P. 8003(a)(3)(B). As before, the appellees claim that this is a
jurisdictional defect that requires dismissal. And as before, we reject this ar-
gument as meritless. See supra Part III.A.3.
III
Turning to the merits, we first take up the open market purchase cases
(Nos. 23-20181 & 23-20450). This court reviews a grant of summary judg-
ment de novo. See Morrow v. Meachum, 917 F.3d 870, 874(5th Cir. 2019). We review findings of fact for clear error and legal conclusions de novo. Matter of Buffets, LLC,979 F.3d 366, 373
(5th Cir. 2020). The interpretation of a con- tract is question of law to be reviewed de novo. See Wal-Mart Stores, Inc. v. Qore, Inc.,647 F.3d 237, 242
(5th Cir. 2011).
We agree with the Excluded and LCM Lenders that the 2020 Uptier
was not a permissible open market purchase within the meaning of the 2016
Agreement. We first (A) detail the applicable law of interpretation. We then
(B) explain why the 2020 Uptier was not an “open market purchase” under
the 2016 Agreement. Finally, we (C) reject various counterarguments and
(D) explain the consequences of our holding for the Excluded Lenders’ coun-
terclaims.
A
The 2016 Agreement provides, and the parties all agree that New
York law governs the interpretation of that contract. Under New York law,
contracts “are construed in accord with the parties’ intent and the best evi-
dence of what parties to a written agreement intend is what they say in their
writing.” Donohue v. Cuomo, 184 N.E.3d 860, 866 (N.Y. 2022) (quotation omitted). “[A] written agreement that is complete, clear[,] and unambiguous on its face must be enforced according to the plain meaning of its terms.” Greenfield v. Philles Recs., Inc.,780 N.E.2d 166, 170
(N.Y. 2002).
27
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
“A contract is unambiguous if the language it uses has a definite and
precise meaning, unattended by danger of misconception in the purport of
the agreement itself, and concerning which there is no reasonable basis for a
difference of opinion.” Id.at 170–71 (quotation omitted). In determining whether the terms of a contract are unambiguous, New York courts give a “practical interpretation to the language employed” and read “the contract as a whole.” Ellington v. EMI Music, Inc.,21 N.E.3d 1000, 1003
(N.Y. 2014); see also In re Westmoreland Coal Co. v. Entech, Inc.,794 N.E.2d 667, 670
(N.Y.
2003) (“A written contract will be read as a whole, and every part will be
interpreted with reference to the whole…. The meaning of a writing may be
distorted where undue force is given to single words or phrases” (quotation
omitted)).
New York courts often look to dictionaries to understand the meaning
of contractual terms. See, e.g., R/S Assocs. v. N.Y. Job Dev. Auth., 771 N.E.2d
240, 242(N.Y. 2002); Ragins v. Hosps. Ins. Co.,4 N.E.3d 941, 942
(N.Y. 2013). But when a contract is made in the context of a particular industry or trade, New York courts will also construe contractual language, especially technical terms, in light of the custom or usage in that industry or trade. See, e.g., Beardslee v. Inflection Energy, LLC,31 N.E.3d 80, 84
(N.Y. 2015); Evans v. Famous Music Corp.,807 N.E.2d 869, 873
(N.Y. 2004); Fox Film Corp. v. Springer,8 N.E.2d 23, 24
(N.Y. 1937); see also Landmark Ventures, Inc. v. H5 Techs., Inc.,58 N.Y.S.3d 591, 593
(N.Y. App. Div. 2017) (“Although words
are generally afforded their ordinary meaning, technical words are to be given
their generally accepted technical meaning and interpreted as usually under-
stood by the persons in the profession or business to which they relate.”
(quotations omitted)).
28
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
B
As enumerated in § 9.05(g)’s exceptions to ratable treatment, an open
market purchase is a purchase of corporate debt that occurs on the secondary
market for syndicated loans. Thus, the 2020 Uptier was not a permissible
open market purchase. Two reasons why.
1
As numerous sources confirm, an “open market” is a specific market
that is generally open to participation by various buyers and sellers. An “open
market purchase” therefore takes place on such a market as is relevant to the
purchased product—here, the secondary market for syndicated loans.
Begin with dictionaries. See R/S Assocs., 771 N.E.2d at 242. Black’s
defines open market as “[a] market in which any buyer or seller may trade
and in which prices and product availability are determined by free competi-
tion.” Open Market, Black’s Law Dictionary (10th ed. 2014). The
OED similarly defines open market as “[a]n unrestricted market in which
any buyer or seller may trade freely, and where prices are determined by sup-
ply and demand.” Open Market, Oxford English Dictionary (3d re-
vised ed. 2004). And Webster’s defines open market as “a freely compet-
itive market in which any buyer or seller may trade and in which prices are
determined by competition.” Open Market, Webster’s Third New In-
ternational Dictionary 1580 (2002).12 The dictionary definitions
_____________________
12
SSB argues that an “open market purchase” of the 2016 first-lien loans could
not have been open to “any” buyer or seller because, under the terms of the open market
purchase exception in § 9.05(g), only SSB and “certain SSB affiliates” could have bought
and only an “existing lender” could have sold. See SSB Red Brief in 23-20181 at 48. But in
an open market, while anyone can participate, not anyone can participate in every transac-
tion. Sellers cannot sell when they have nothing to sell. Buyers cannot buy when they have
no money to buy. Parties may also have additional restrictions placed on them by contracts
or laws (e.g. insider trading). The point here is not whether the open market purchase
29
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
thus contemplate a specific market in which various parties may participate
and the prices are set by competition.
New York state precedents confirm this understanding of “open mar-
ket” as referring to specific markets, especially in relation to “open market
purchases.” See, e.g., Levine v. Chesapeake & Ohio R. R. Co., 400 N.Y.S.2d
76, 77(N.Y. App. Div. 1977) (referring to “open market purchases” on the public stock exchanges); Schulwolf v. Cerro Corp.,380 N.Y.S.2d 957
, 959 (N.Y. Sup. Ct. 1976) (describing “open market purchases” of stock from public stockholders). Looking beyond open market purchases to mere refer- ences to “open markets,” the LCM Lenders compiled a vast number of precedents in which the term “open market” is used to refer to a specific market that is generally open. See, e.g., United States v. Bilzerian,926 F.2d 1285
, 1289–90 (2d Cir. 1991); Cities Serv. Co. v. United States,522 F.2d 1281, 1289
(2d Cir. 1974); SEC v. Tex. Gulf Sulphur Co.,401 F.2d 833
, 858 (2d Cir.
1968); see also Blue Br. (LCM Lenders) in 23-20181 at 23–25.13
One significant example comes from the Federal Reserve. For many
decades, the Federal Reserve, led by the Federal Reserve Bank of New York,
has conducted “open market operations” through the “purchase and sale”
of securities on a particular open market—the open securities market. See
Fed. Open Mkt. Comm. of Fed. Rsrv. Sys. v. Merrill, 443 U.S. 340, 343–46 (1979); Merrill v. Fed. Open Mkt. Comm. of Fed. Rsrv. Sys.,565 F.2d 778, 781
(D.C. Cir. 1977) (discussing “open-market purchases”); see also U.S.
_____________________
contemplated by § 9.05(g) was open to anyone, but whether such a purchase took place on
a market that was generally open to anyone.
13
SSB’s attempt to distinguish these authorities as dealing with different kinds of
financial transactions is unpersuasive. See SSB Red Brief in 23-20181 at 50 n. 16. The point
is not that the term “open market” only refers to certain markets; rather, it is that the term
“open market” is repeatedly used to refer to a specific market.
30
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No. 23-20181
c/w Nos. 23-20363, 23-20450, 23-20451
Federal Reserve System, The Fed Explained: What the
Central Bank Does 13, 34, 37, 38 (11th ed., 2021) (explaining that the
Federal Reserve makes “open market purchases” on the securities market at
prices determined by competition). As the Federal Reserve has explained,
federal law “requires” it to make these open market purchases in—where
else?—“the open market.” U.S. Federal Reserve System, The
Fed Explained: What the Central Bank Does, supra, at 37. The
New York Fed’s widely known operations supply yet another data point that,
as a matter of financial industry custom or usage, the term “open market”
refers to a specific market. Cf. Beardslee, 31 N.E.3d at 84.
These sources demonstrate a problem with the definitions proposed
by SSB and the Prevailing Lender plaintiffs: they forget the word “market.”
SSB argues that “an open market purchase means to acquire something for
value in competition among private parties.” SSB Red Brief in 23-20181 at
38. But as discussed above, the words “open market” point to a specific
“market,” not merely a general context where private parties engage in non-
coercive transactions with each other. Were that the case, the § 9.05(g) term
could be “open purchase,” not “open market purchase.” For their part, the
Prevailing Lender plaintiffs try to incorporate the word “market” into their
definition. Prevailing Lenders Red Brief in 23-20181 at 37 (An open market
purchase is “a transaction in which something is obtained for monetary value
in a market where prices are set by competitive negotiations between private
parties.”). But their definition is equally flawed. The Prevailing Lender plain-
tiffs suggest that there is an open market wherever there is competition. But
the relevant sources indicate that an open market is one tied to a specific mar-
ket, like the stock market or the commodities market or the securities market.
An open market is a designated market, not merely the background concept
of free competition that characterizes much of modern American commerce.
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c/w Nos. 23-20363, 23-20450, 23-20451
Thus, an open market purchase occurs on the specific market for the
product that is being purchased. In this case, the relevant product is first-lien
debt issued under the 2016 Agreement, and the market for that product is the
“secondary market” for syndicated loans. Loan Syndications & Trading Ass’n
v. SEC, 882 F.3d 220, 223 (D.C. Cir. 2018) (citation omitted); Excluded
Lenders Blue Brief in 23-20181 at 30–31 (discussing this market). The market
is generally open to buyers and sellers, and its prices are set by competition.
So if SSB wished to make a § 9.05(g) open market purchase and thereby cir-
cumvent the sacred right of ratable treatment, it should have purchased its
loans on the secondary market. Having chosen to privately engage individual
lenders outside of this market, SSB lost the protection of § 9.05(g).
2
The preceding definition of open market purchase also comports with
the Dutch auction, § 9.05(g)’s other exception to ratable treatment. Whereas
SSB and the Prevailing Lender plaintiffs’ expansive definitions would swal-
low that exception and render it surplusage.
Recall the structure of § 9.05(g). SSB must respect the sacred right
of pro-rata sharing and engage with its lenders on equal footing, except
through a Dutch auction or by making open market purchases. Correctly un-
derstood, the open market purchase does not overlap with or intrude on the
Dutch auction. SSB may go to the secondary market and submit bids to com-
plete an open market purchase of any amount. Or SSB may conduct an off-
market Dutch auction, wherein it must notify all relevant lenders of its intent,
purchase at least $10 million of debt, and follow the procedures in the 2016
Agreement. The two § 9.05(g) exceptions may not be equally appealing, but
one could not call a Dutch auction an open market purchase or vice versa.
Not so with the appellees’ expansive definitions. If an open market
purchase is merely an acquisition of “something for value in competition
32
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c/w Nos. 23-20363, 23-20450, 23-20451
among private parties,” SSB Red Brief in 23-20181 at 38, the Dutch auction
exception does no work. Short of coercing one of its lenders, SSB could call
any arms-length transaction—including a Dutch auction—an open market
purchase. After all, the completion of a Dutch auction and accompanying
buyback of loans would constitute an acquisition for value in competition
among participants. The same would be true if SSB wanted to conduct a
slightly less-regulated Dutch auction. The appellees’ expansive definitions
thus render the entire Dutch auction exception superfluous, contrary to
standard rules of New York contract interpretation.14 See Ronnen v. Ajax Elec.
Motor Corp., 671 N.E.2d 534, 536(N.Y. 1996) (“We have long and consist- ently ruled against any construction which would render a contractual provi- sion meaningless or without force or effect.”) (collecting cases). See also El- lington,21 N.E.3d at 1003
(requiring courts to read contracts “as a whole”).
C
SSB and the Prevailing Lender plaintiffs offer a number of counter-
arguments in favor of their definitions. None is persuasive.
1
First, they reference the expressio unius canon and its supposed appli-
cation to § 9.05(g). See, e.g., Quadrant Structured Prod. Co. v. Vertin, 16
N.E.3d 1165, 1172 (N.Y. 2014) (“[I]f parties to a contract omit terms—par-
ticularly, terms that are readily found in other, similar contracts—the
_____________________
14
SSB protests against this argument from surplusage, but its response is unavail-
ing. SSB states that the 2016 Agreement merely allows it to “select the procedure that it
believes will yield the best results. For some transactions, that may be a Dutch auction.
Here, it was an open market purchase.” SSB Red Brief in 23-20181 at 58. Yet if an open
market purchase necessarily encompasses a Dutch auction (even a Dutch auction with all
of the requirements enumerated in the 2016 Agreement), then there is no real choice and
no selection between differing options.
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c/w Nos. 23-20363, 23-20450, 23-20451
inescapable conclusion is that the parties intended the omission.”) (applying
expressio unius canon to interpret a contract). In their telling, § 9.05(g) pro-
vides that a Dutch auction must be “open to all Lenders,” but does not say
that the open market purchase must be “open to all Lenders.” See ROA.23-
20181.287. Thus, SSB could conduct open market purchases that were not
open to all, or even most, of their lenders. See Serta Simmons Bedding, 2023
WL 3855820, at *11 (making this same argument).
This argument is very weak. Even if expressio unius was applicable, the
word “open” appears in both exceptions: it’s the first word of the term
“open market purchase[].” ROA.23-20181.287. And as demonstrated above,
the “open market” portion of “open market purchase” does significant work
in shaping its meaning. There would be no reason to—and in fact, it would
be surplusage—to say “open market purchases open to all Lenders” if the
term “open market purchase” contemplated a transaction that was public
and open to most, if not all lenders. See supra Part III.B. Therefore, the ex-
pressio unius argument carries no weight.
2
Next, SSB and the Prevailing Lender plaintiffs place great weight on
what they term the Excluded Lenders’ course of performance. At trial, SSB
presented evidence that the Excluded Lenders had made an alternative re-
capitalization proposal involving a similar kind of debt swap which also would
have made use of the open market purchase exception. This past behavior,
SSB argues, is course-of-performance evidence that parties to the 2016
Agreement understood the § 9.05(g) exception to allow uptiers.
There are multiple flaws with this argument. There is only one exam-
ple of the Excluded Lenders performing in such a manner that would indicate
the 2016 Agreement allowed uptiers. But SSB’s single New York State au-
thority requires the course of performance to encompass a “considerable
34
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c/w Nos. 23-20363, 23-20450, 23-20451
period of time.” See Fed. Ins. Co. v. Americas Ins. Co., 258 A.D.2d 39, 44(N.Y. App. Div. 1999) (quotation omitted). And “action on a single occasion” does not constitute a course of performance. See Restatement (Second) of Contracts § 202, cmt. g. (Am. L. Inst. 1981). Moreover, the above authorities consistently reference “the parties” to an agreement, with the implication that all of the parties are involved in the course of performance. See Fed. Ins. Co.,258 A.D.2d at 44
; Restatement (Second) of Con- tracts, supra, § 202, cmt. g. (Course of performance “does not apply . . . to action of one party only.”). But not all of the objecting lenders submitted a similar proposal—there is no evidence that the LCM Lenders ever thought an uptier was a permissible open market purchase. Cf. Serta Simmons Bed- ding,2023 WL 3855820
, at *11–12. If not all of the parties are involved in a
course of performance, such evidence cannot be used to argue about an
agreed-upon past intention. Thus, the course-of-performance argument fails.
3
Finally, SSB and the Prevailing Lender plaintiffs argue that industry
usage supports their expansive definitions of open market purchase. Specifi-
cally, they point to a guide published by the Loan Syndications and Trading
Association (“LSTA”).
The LSTA is a trade group that covers the American syndicated loans
market. Both sides cite their materials. See, e.g., Excluded Lenders Blue Brief
in 23-20181 at 31, 34–35; SSB Red Brief in 23-20181 at 39. In 2017, the LSTA
published a “Complete Credit Agreement Guide,” which discusses loan
buybacks.15 The relevant section reads as follows:
_____________________
15
The LSTA is considered to be a reputable trade group, see, e.g., Dick, supra, at
1338, and the guide has been repeatedly cited by corporate law scholars as authoritative.
See, e.g., Vincent S.J. Buccola, Bankruptcy’s Cathedral: Property Rules, Liability Rules, and
Distress, 114 Nw. U. L. Rev. 705, 718 n.53 (2019) (calling it “an excellent guide to
35
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c/w Nos. 23-20363, 23-20450, 23-20451
Buyback methodologies can be grouped into two broad catego-
ries: pro rata offered buybacks available to all lenders and non-
pro rata open market purchases that are made available on a
narrower basis to individual lenders. In the former category,
there are two principal methodologies that have developed to
determine the price and total amount of the loans to be prepaid
or acquired: a fixed-price tender offer and a reverse (or modi-
fied) Dutch auction. While there is no particular magic to using
these methodologies, the market has come to regard them as
fair and transparent—two considerations of utmost im-
portance to lenders. Each lender (or at least each lender of a
certain tranche for tranche-specific buybacks) is offered the op-
portunity to sell its loan and, even if it passes on the offer, at
least the borrower cannot be accused of favoritism. In the cate-
gory of open market purchases, a borrower is allowed to nego-
tiate one-on-one with individual lenders to repurchase loans up
to a pre-agreed dollar amount. This approach is the most bor-
rower-friendly, but may not pass the “fair and transparent”
tests.
ROA.23-20181.3675 (emphasis added). At first blush, the guide seems to en-
dorse something close to the open market purchase definitions favored by the
appellees: an off-market, one-on-one transaction conducted with individual
lenders. But on a closer look, the LSTA guide cannot rescue SSB and the
Prevailing Lender plaintiffs.
To begin, while the LSTA guide carries some weight, it is not binding
authority. Insofar as it reflects industry custom and practice, the guide is rel-
evant to our interpretation of the 2016 Agreement.16 See Beardslee, 31 N.E.3d
_____________________
modern credit agreements”); Dick, supra, at 1344 n.45 (calling it “a classic practice-ori-
ented treatise on syndicated loan agreements”).
16
The LSTA guide was not the only pre-2020 industry source discussing the open
market purchase (with 2020 as the cut-off because publications began to be influenced by
discussions of the 2020 Uptier and other such transactions). For example, a 2009 Weil
36
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c/w Nos. 23-20363, 23-20450, 23-20451
at 84. But it is not dispositive in this case, especially when other interpretive
aids—like the sources interpreting the words “open market” and the rule
against surplusage—push strongly against the appellees’ expansive defini-
tion.
Even if we viewed the guide as dispositive, its discussion of open mar-
ket purchases does not support the 2020 Uptier. The guide endorses either a
narrow definition of open market purchase confined to buybacks or a concep-
tion of open market purchase that does not fit the 2016 Agreement.
As to the narrow definition, open market purchases are described in a
section on debt buybacks. The paragraph on open market purchases is sur-
rounded by a larger discussion of buybacks and the concerns that lenders may
have about buybacks depleting borrower liquidity—i.e., because the bor-
rower has spent cash in buying back its own debt. Since the guide describes
the open market purchase as a kind of “[b]uyback methodology,” then an
open market purchase is presumably used to retire outstanding debt and not
to swap old debt for new debt (as the 2020 Uptier did). See also Wachtell,
Lipton, Rosen, & Katz, Distressed Mergers and Acquisi-
tions 21, 23 (2013) (contrasting debt buybacks—including open market
purchases—with debt-for-debt exchanges). This understanding is confirmed
by the discussion of the open market purchase alongside the Dutch auction
and the fixed price tender offer. For these mechanisms are not used typically,
if ever, to facilitate an old debt for new debt exchange like the 2020 Uptier.
As to the fit with the 2016 Agreement, the LSTA guide suggests that
the use of open market purchases conforms to a pre-set price cap. See
_____________________
Gotshal publication suggested a narrower understanding of open market purchase. See
ROA.23-20181.4121–22 (“An open market purchase is accomplished through a broker or
agent and requires the purchaser to pay a set market price. Normally, the parties involved
in an open market purchase are not aware of one another’s identity.”).
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ROA.23-20181.3675 (“[A] borrower is allowed to negotiate one-on-one with
individual lenders to repurchase loans up to a pre-agreed dollar amount.” (em-
phasis added)); see also ROA.23-20181.3484 (noting that “borrowers would
be permitted to spend up to some fixed amount of dollars making open market
repurchases of their own loans. . . .” (emphasis added)). But there is no such
cap in the 2016 Agreement, so the LSTA definition may not apply to this
open market purchase reference.
In sum, the LSTA guide is not dispositive on the meaning of open
market purchase. And even if it were, it still would not support the 2020 Up-
tier or apply to the open market purchase in the 2016 Agreement.
D
We hold that the 2020 Uptier was not a permissible open market pur-
chase within the meaning of the 2016 Agreement, cleanly resolving the appeal
in 23-20181. We REVERSE the bankruptcy court’s contrary ruling. We next
turn to 23-20450 and the Excluded Lenders’ appeal of their denied counter-
claims for breach of contract.
The bankruptcy court’s post-trial denial of those counterclaims was
largely based on its analysis of the open market purchase issue. See Serta Sim-
mons Bedding, 2023 WL 3855820, at *12–14. But if the 2020 Uptier was not
permitted under the open market purchase exception in § 9.05(g), the Ex-
cluded Lenders have a strong case that SSB and the Prevailing Lender plain-
tiffs breached the 2016 Agreement. Because the parties to the post-trial final
judgment appeal (23-20450) adopted their briefs from the summary judg-
ment appeal (23-20181), however, there is little substantive discussion of the
breach of contract issue before this court. Thus, in 23-20450, we VACATE
in part and REMAND for reconsideration of the Excluded Lenders’ breach
of contract counterclaims.
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IV
Having decided that the 2020 Uptier was not an open market purchase
within the meaning of the 2016 Agreement, we now consider the Plan indem-
nity cases (23-20451 & 23-20363).
We agree with the Excluded Lenders and Citadel that the Plan improp-
erly included indemnities relating to the 2020 Uptier. We first (A) detail why
equitable mootness does not bar our review of the Plan’s confirmation order.
We then (B) demonstrate why inclusion of the indemnity was an impermissi-
ble end-run around the Bankruptcy Code and (C) outline how the indemnity
violated the Code’s requirement of equal treatment. Finally, we (D) explain
why the appropriate remedy is excision.
A
The confirmed Plan provided an indemnity to all creditors holding
first and second-out super-priority debt issued in the 2020 Uptier (the settle-
ment indemnity), as of the effective date of the Plan (June 29, 2023). In 23-
20451 and 23-20363, the Excluded Lenders and Citadel request that this
court excise the settlement indemnity from the Plan. In response, SSB and
the Prevailing Lender plaintiffs argue that such a request is equitably moot,
requiring the dismissal of both appeals.
At the threshold, we note that equitable mootness is a bit of a misno-
mer—much like green pastel redness. Cf. John Hart Ely, Democ-
racy and Distrust: A Theory of Judicial Review 18 (1980).
Following Judge Easterbrook’s lead, we differentiate between “inability to al-
ter the outcome (real mootness)” and “unwillingness to alter the outcome
(‘equitable mootness’).” In re UNR Indus., Inc., 20 F.3d 766, 769(7th Cir. 1994). Real mootness implicates our jurisdiction under Article III. See Friends of the Earth, Inc. v. Laidlaw Env’t Servs. (TOC), Inc.,528 U.S. 167
(2000).
Whereas “equitable mootness is a judicial anomaly,” a judge-created doctrine
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c/w Nos. 23-20363, 23-20450, 23-20451
of pseudo-abstention “that favors the finality of reorganizations” and thus
constrains our appellate review of plan confirmation orders. In re Pac. Lumber
Co., 584 F.3d 229, 240(5th Cir. 2009); see also In re Cont’l Airlines,91 F.3d 553
, 569 (3d Cir. 1996) (en banc) (Alito, J., dissenting) ( “[T]he doctrine of ‘equitable mootness’ is not really about ‘mootness’ at all in either the Article III or non-Article III sense.”); cf. Chafin v. Chafin,568 U.S. 165, 178
(2013) (rejecting a similar attempt to “manipulate constitutional doctrine” and rely on mootness to vindicate non-jurisdictional aims). As this court has previ- ously done, we examine its application before turning to the merits. See, e.g., In re Highland Cap. Mgmt., LP,48 F.4th 419, 429
(5th Cir. 2022); Pac. Lum- ber,584 F.3d at 239
.
In assessing equitable mootness, we analyze three factors: “(i)
whether a stay has been obtained, (ii) whether the plan has been ‘substantially
consummated,’ and (iii) whether the relief requested would affect either the
rights of parties not before the court or the success of the plan.” Highland
Cap. Mgmt., 48 F.4th at 429(citation omitted); see alsoid. at 430
(“[T]he in- quiry turns on whether the court can craft relief for that claim that would not have significant adverse consequences to the reorganization.”). In conducting this analysis, we are heedful that equitable mootness is a “scalpel, rather than an axe.” Pac. Lumber,584 F.3d at 240
. We are aware of our “‘virtually unflag- ging obligation’ to exercise the jurisdiction” that the Constitution and Con- gress have conferred on us.Ibid.
(quoting Colo. River Water Conservation Dist. v. United States,424 U.S. 800, 817
(1976)). And we exercise “caution[]” when applying equitable mootness to direct appeals from a bankruptcy court. Pac. Lumber,584 F.3d at 241
.
Against this backdrop, we hold that the two Plan indemnity appeals
are not equitably moot. There are three reasons why.
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1
Begin with the three-factor test. Although the Excluded Lenders and
Citadel failed to obtain a stay of confirmation, and the Plan has been substan-
tially consummated, this court has still exercised appellate review when only
the third factor weighed against equitable mootness. See, e.g., Highland Cap.
Mgmt., 48 F.4th at 430–32; Pac. Lumber, 584 F.3d at 242–43. We find that the
third factor does so here, for the requested relief of excision would not “affect
either the rights of parties not before the court or the success of the plan.”
Highland Cap. Mgmt., 48 F.4th at 429 (quotation and citation omitted). Ac-
cordingly, equitable mootness does not apply.
First, the Excluded Lenders and Citadel sought a stay of the bank-
ruptcy court’s confirmation order, which was denied three times over. But we
have never said that the failure to obtain a stay mandates finding an appeal
equitably moot. See Highland Cap. Mgmt., 48 F.4th at 430(“No one factor is dispositive.”); In re Crystal Oil Co.,854 F.2d 79, 82
(5th Cir. 1988) (finding a stay is not a “per se requirement for relief on appeal”). And the parties ob- tained a direct appeal to this court under28 U.S.C. § 158
(d)(2), which is a “caution[]” against finding equitable mootness. Pac. Lumber,584 F.3d at 241
; see alsoid. at 242
(“Congress’s purpose may be thwarted if equitable moot-
ness is used to deprive the appellate court of jurisdiction over a properly cer-
tified appeal.”).
Consider next the rights of third parties not before the court. Excision
of the settlement indemnity would affect SSB, which would no longer be on
the hook for liability related to the 2020 Uptier,17 as well as those holders of
super-priority debt who participated in the Uptier (i.e., the Prevailing Lender
_____________________
17
Such liability is all the more apparent given our earlier resolution of the open
market purchase cases. See supra Part III.D.
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plaintiffs). The former would benefit from excision; the latter would not. But
both are present here. Those holders of super-priority debt who received the
indemnity but did not participate in the 2020 Uptier—like Citadel—might
be technically affected by excision, in that they would no longer have the in-
demnity. But such entities never needed the indemnity in the first place, and
our precedents suggest that the third equitable mootness factor cares for neg-
ative, not nominal, impact. See, e.g., Highland Cap. Mgmt., 48 F.4th at 431–
32. So it is unclear which third-parties would be harmed by excision.18
A similar analysis applies to the success of the Plan. The Plan was in-
tended to reorganize SSB and position it for long-term financial success.
Plainly, SSB would face an easier future without a massive liability hanging
over its head. So it is also unclear how excision would threaten the success of
the Plan. Cf. In re GWI PCS 1 Inc., 230 F.3d 788, 803 (5th Cir. 2000) (finding
an appeal equitably moot when the requested relief would saddle subsidiary
debtors with an additional $894 million obligation).
SSB and the Prevailing Lender plaintiffs disagree, contending that we
cannot excise the indemnity without unwinding the entire Plan and triggering
a whole new confirmation proceeding. They argue this would harm many
third parties and undermine the success of the Plan. We agree that the
_____________________
18
It is theoretically possible that one of the Prevailing Lenders involved with the
2020 Uptier could have (a) held onto its super-priority debt through the June 2023 and thus
received a valuable indemnity but (b) chosen not to join the Prevailing Lender plaintiffs in
this litigation, thus (c) becoming a third-party whose rights would be negatively affected by
excision. But the parties do not identify such an entity and SSB and the Prevailing Lender
plaintiffs do not argue against excision as such. Moreover, it seems like the Prevailing
Lender plaintiffs held most of the super-priority debt as of June 2023, see Appellees’ Op-
posed Motion to Dismiss Appeals at 3, 14, No. 23-20363, ECF 126 (Feb. 20, 2024) (“The
[Prevailing] Lenders held at least 81% of SSB’s first-lien, first out debt and at least 77% of
the SSB’s first-lien, second out debt.”), with the remainder probably held by entities like
Citadel that did not participate in the Uptier.
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unraveling of the Plan would have substantial consequences, but our prece-
dents does not indicate that the remedy of excision requires thus. In fact, we
have said just the opposite. See, e.g., Highland Cap. Mgmt., 48 F.4th at 430–31
(explicitly rejecting the notion that the court cannot surgically excise certain
provisions rather than unravel the entire plan); see also Pac. Lumber, 584 F.3d
at 241(noting that we may “fashion whatever relief is practicable”);id. at 240
(noting that we “generally apply equitable mootness with a scalpel rather than
an axe”).
And while the appellees rely on some of our precedents to support
their “excision requires a new plan” argument, all are distinguishable. Unlike
in Crystal Oil, the appellants here tried to obtain a stay, and excision of the
indemnity would not destroy the confirmed Plan. Cf. id.at 81–82. Unlike GWI PCS 1 Inc., excision would not place a massive financial burden on the relevant debtors—rather, it helps them. Cf.230 F.3d at 803
. And unlike In re Manges,29 F.3d 1034
(5th Cir. 1994), excision would not harm many third parties which have substantially relied on the indemnity’s presence in the Plan. Cf.id.
at 1042–43. Accordingly, excision does not toll doom for the Plan,
and the third factor properly weighs against equitable mootness.
2
In rejecting equitable mootness, we also are mindful of our precedent
regarding direct appeals from bankruptcy courts. As we stated in 2009:
The twin purposes of [28 U.S.C. § 158(d)(2)] were to expedite
appeals in significant cases and to generate binding appellate
precedent in bankruptcy, whose caselaw has been plagued by
indeterminacy. . . . Congress’s purpose may be thwarted if eq-
uitable mootness is used to deprive the appellate court of juris-
diction over a properly certified appeal.
Pac. Lumber, 584 F.3d at 241–42.
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Fifteen years later, these lines from Pacific Lumber speak with particu-
lar force. As to the first purpose, equitable mootness would here defeat the
use of 28 U.S.C. § 158(d)(2) to expedite appeals in significant cases. The bankruptcy court quickly certified the confirmation order for direct appeal to this court. This court granted timely motions for permission to appeal. And no one can doubt that these appeals are significant— they involve a contro- versial indemnity potentially worth tens of millions of dollars. As to the sec- ond purpose, our discussion of the Bankruptcy Code generates binding ap- pellate precedent. See infra Part IV.B–C. We would particularly note our dis- cussion of the equal treatment rule in11 U.S.C. § 1123
(a)(4), see infra Part
IV.C, which even the appellees admit has never been interpreted by the Su-
preme Court or this court. So the twin purposes of § 158(d)(2) only confirm
our rejection of equitable mootness.
3
Finally, we address what we take to be the heart of SSB’s and the Pre-
vailing Lender plaintiffs’ complaint about equitable mootness: unfairness. As
the argument goes, the Prevailing Lender plaintiffs agreed to support the Plan
only because of the settlement indemnity. If they had known it would be ex-
cised later, they would not have given their agreement; rather, they would
have exacted some other consideration from SSB. They contend it is unfair
for this court to excise the indemnity now without letting them go back to the
drawing board, which we cannot do without upending the Plan. Thus, on
their view, we must do nothing.
Such an aggressive position requires nothing less than a full-throated
rebuttal. If endorsed, the appellees’ argument would effectively abolish ap-
pellate review of even clearly unlawful provisions in bankruptcy plans. Parties
supporting such provisions could always argue they would have done things
differently if they had known the provisions would later be excised. And if we
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cannot excise specific provisions but must let the parties go back to square
one—which we cannot do without destroying the underlying Plan—then the
appellate courts are effectively stripped of their jurisdiction over bankruptcy
appeals, despite Congress’s clear intent to the contrary. See 28 U.S.C.
§ 158(d) (providing for direct appellate jurisdiction over bankruptcy court fi-
nal decisions, judgments, orders, and decrees). That, of course, cannot be so,
and we do not accept the appellees’ invitation to upset the norms of appellate
review by complying with their implausible interpretations of a judge-made,
atextual doctrine of pseudo-abstention.
In support of their fairness argument, SSB and the Prevailing Lender
plaintiffs cite an isolated line from Crystal Oil about depriving a creditor of
the benefits of its bargain. See Appellees’ Opposed Motion to Dismiss Ap-
peals at 17, No. 23-20363 (Feb. 20, 2024) (quoting Crystal Oil, 854 F.2d at
81). But to the extent it applies at all, that case is easily distinguished. In Crys- tal Oil, one creditor received concessions from another and then sought to deprive the second creditor of the benefits of its previous sacrifice.854 F.2d at 81
. In contrast, the objecting creditors here—the Excluded Lenders and Citadel—did not receive concessions from the Prevailing Lender plaintiffs. Actually, under the Plan, the Excluded Lenders barely received anything at all. Moreover, the Crystal Oil creditors made no efforts to obtain a stay or prevent the kind of “comprehensive change of circumstances” and reliance interests that raise equitable concerns. Crystal Oil,854 F.2d at 82
. The same
kinds of fairness considerations are not present in this case.
Instead, to the extent equitable mootness exists at all, we affirm that it
cannot be “a shield for sharp or unauthorized practices.” Pac. Lumber, 584
F.3d at 244 n.19. Judge Jones put it well in Pacific Lumber: “That there might
be adverse consequences to [the appellees] is not only a natural result of any
ordinary appeal—one side goes away disappointed—but adverse appellate
consequences were foreseeable to them as sophisticated investors who opted
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to press the limits of bankruptcy confirmation . . . rules.” Id. at 244. From the
moment the Prevailing Lender plaintiffs agreed to a controversial indemnity
arising out of a contentious transaction, they could foresee the adverse con-
sequences of an unfavorable appellate ruling. We will not save such sophisti-
cated parties from the consequences of their actions, and we decline to dis-
miss these appeals as equitably moot.19
B
Turning to the merits, we first hold that the Plan’s inclusion of the
indemnity was an impermissible end-run around the Bankruptcy Code.
Pursuant to 11 U.S.C. § 502(e)(1)(B), the bankruptcy court must dis- allow any contingent claim for reimbursement where the claiming entity is co-liable with the debtor. Section 502(e)(1)(B) thus “protects debtors from multiple liability on contingent debts,” In re Eagle Picher Indus., Inc.,131 F.3d 1185, 1187
(6th Cir. 1997), and prevents the estate from being “burdened by estimated claims contingent in nature,” In re Charter Co.,862 F.2d 1500
, 1502
(11th Cir. 1989).
Here, the Prevailing Lender plaintiffs filed proofs of claims for indem-
nification and contribution related to their participation in the 2020 Uptier,
seeking to make use of the indemnity which SSB agreed to back in 2020.
Those claims are contingent claims for reimbursement where the claiming
entity is co-liable with the debtor: the lenders wanted SSB to reimburse them
for future losses they have not yet suffered and for which they were co-liable
with SSB, their contractual partner in the Uptier. So as all parties and the
bankruptcy court agreed, § 502(e)(1)(B) disallowed the above claims and in-
validated the related pre-petition indemnity. Serta Simmons Bedding, 2023
_____________________
19
Because SSB and the Prevailing Lender plaintiffs filed a motion to dismiss that
was carried with the case, we also DENY that motion.
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WL 3855820, at *10 (discussing the “pre-petition indemnity lost due to the bankruptcy filing”); see alsoid.
(“Indeed, when asked by the Court, counsel
for the PTL Lenders and the Debtors affirmed the disallowance of the pre-
petition indemnity.”). This much is common ground.
However, the pre-petition indemnity did not stay dead for long. In the
five days between the first amended plan and the modified first amended
plan, SSB and the Prevailing Lender plaintiffs resurrected the pre-petition
indemnity as a settlement indemnity. See 11 U.S.C. § 1123(b)(3)(A) (“[A] plan may . . . provide for the settlement or adjustment of any claim or interest be- longing to the debtor or to the estate.”). So when the Excluded Lenders and Citadel objected to this new indemnity, the appellees argued that it was jus- tified under § 1123(b)(3)(A) as the result of a settlement between SSB and the Prevailing Lender plaintiffs. See Serta Simmons Bedding,2023 WL 3855820
, at *10. The bankruptcy court bought the appellees’ arguments on this front and approved the settlement indemnity. Seeid.
That was a mistake. The settlement indemnity was an impermissible
end-run around § 502(e)(1)(B)’s disallowance of contingent claims for reim-
bursement. And the appellees’ characterization of the indemnity as part of a
§ 1123(b)(3)(A) settlement does not change the analysis.
Czyzewski v. Jevic Holding Corp., 580 U.S. 451(2017) is instructive. In Czyzewski, the bankruptcy court approved a settlement accomplishing the “structured dismissal” of a Chapter 11 petition, wherein certain assets of the estate would be distributed in a manner seemingly contrary to the Code’s pri- ority scheme. Seeid.
at 459–61. Concluding that the structured dismissal did indeed clash with the priority system “long [] considered fundamental to the Bankruptcy Code[],”the Supreme Court searched for a textual hook suffi- cient to show that Congress intended such “a major departure.”Id. at 465
. But the only options were insufficient. Compare11 U.S.C. § 1112
(b)
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(providing that a bankruptcy court may “dismiss” a Chapter 11 petition), with
Czyzewski, 580 U.S. at 465(“[T]he word ‘dismiss’ itself says nothing about the power to make nonconsensual priority-violating distributions of estate value.”); compare11 U.S.C. § 349
(b) (providing that, in the context of a dis- missal, the bankruptcy court may “for cause, orde[r] otherwise”), with Czyzewski,580 U.S. at 466
(“[T]he word ‘cause’ is too weak a reed upon which to rest so weighty a power.”). Quoting Whitman v. American Trucking Ass’ns,531 U.S. 457, 468
(2001), the Court maintained that “Con- gress . . . does not, one might say, hide elephants in mouseholes.” Czyzewski,580 U.S. at 465
(quotation omitted). And the Court reminded the litigants that “statutory construction . . . is a holistic endeavor,” by which courts must “look to the provisions of the whole law.” Seeid.
at 466–67 (quotation omit- ted). Without adequate textual support for its maneuver, the bankruptcy court was wrong to approve such an end-run around the Code. Seeid. at 471
.
The analysis in Czyzewski is directly applicable to these appeals. The
bankruptcy court approved a settlement wherein the Plan would contain an
indemnity securing contingent claims for reimbursements. Such claims
would otherwise be disallowed by § 502(e)(1)(B) of the Code,20 so we search
for a textual hook showing that Congress intended some kind of a work-
around. But the only option— § 1123(b)(3)(A)—is insufficient. The language
in § 1123(b)(3)(A) merely indicates that a plan may settle or adjust certain
claims or interests. Since it does not affirmatively provide for the back-end
resurrection of claims already disallowed on the front end, § 1123(b)(3)(A) is
“too weak a reed” to support the settlement indemnity. Cf. Czyzewski, 580
U.S. at 466. Mindful that Congress does not hide elephants in mouseholes and that statutory construction is a holistic endeavor, seeid.
at 466–67, we
_____________________
20
And indeed, they were in this case.
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decline to read § 1123(b)(3)(A) as an escape hatch from the Code’s explicit
disallowance of certain claims. See also In re Ultra Petroleum Corp., 51 F.4th
138, 146(5th Cir. 2022), cert. denied,143 S. Ct. 2495
(2023) (rejecting “easy
end-runs by canny creditors” around the disallowance provisions of the
Code). Accordingly, the Plan indemnity cannot be justified as part of a
§ 1123(b)(3)(A) settlement.21
Against this analysis, SSB and the Prevailing Lender plaintiffs stress
the differences between the pre-petition and settlement indemnities. But this
argument fails, for the settlement indemnity is sufficiently similar to the pre-
petition indemnity so as to still view it as an end-run around § 502(e)(1)(B).
No party disputes that the settlement indemnity covers the same kind
of losses as the pre-petition indemnity. Given that similarity, SSB and the
Prevailing Lender plaintiffs must highlight two small differences: time and
relevant parties. The pre-petition indemnity covered all of and only the Pre-
vailing Lenders who participated in the 2020 Uptier, whereas the settlement
indemnity covered only those holders of super-priority debt as of June 29,
2023. As the appellees tell it, such differences mean that the settlement in-
demnity was not an impermissible attempt to resurrect the pre-petition in-
demnity.
We reject this argument as unpersuasive. Taken to its logical conclu-
sion, a § 1123(b)(3)(A) settlement could thus resurrect a clearly disallowed
claim or related indemnity so long as it was modified slightly from its original
form. Thus, an indemnity which applied to 19 creditors with disallowed con-
tingent claims for reimbursement could be resurrected by adding in a
_____________________
21
Insofar as the Czyzewski Court also considered evidence of “contrary prece-
dent . . . from lower court decisions reflecting common bankruptcy practice,” 580 U.S. at
467, SSB and the Prevailing Lender plaintiffs do not present such evidence.
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twentieth creditor who has no need for the indemnity. But Czyzewski and In
re Ultra Petroleum do not require such strict side-by-side comparisons, nor do
they allow the Code’s clear requirements to be evaded by such sophistry. See
In re Ultra Petroleum, 51 F.4th at 147(emphasizing “economic reality” over “dictionary definitions or formalistic labels”); Czyzewski, 580 U.S. at 467–71 (discussing functional considerations); In re Braniff Airways, Inc.,700 F.2d 935, 940
(5th Cir. 1983) (rejecting an attempt to “short circuit the require-
ments of Chapter 11 for confirmation of a reorganization plan”). The proper
test is functional—i.e., whether the resurrected indemnity is, for all intents
and purposes, the same as or similar to that which was disallowed before.
The settlement indemnity fails that test. The pre-petition indemnity
mirrored the terms of the 2020 Uptier indemnity and was intended to satisfy
the claims of the lenders that participated in the uptier. The settlement in-
demnity was on the exact same terms and was intended to protect the very
same group of lenders, excluding those few of the Prevailing Lenders that sold
their super-priority debt between 2020 and 2023. Moreover, the settlement
indemnity was intended to cover the same contingent claims for reimburse-
ment previously disallowed under § 502(e)(1)(B). That the settlement in-
demnity also applied to parties like Citadel who have no need of it does not
disguise its true nature. For this reason and others, we hold that the Plan in-
demnity was an impermissible end-run around the Code.
C
Even if the settlement indemnity was justified under § 1123(b)(3)(A),
its inclusion in the Plan violated the Code’s requirement of equal treatment.
1
Under 11 U.S.C. § 1123(a)(4), a plan must “provide the same treat-
ment 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
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particular claim or interest.” The Code does not define this requirement of
equal treatment, see In re AOV Indus., Inc., 792 F.2d 1140, 1152(D.C. Cir. 1986), and neither the Supreme Court nor this court has substantially en- gaged with § 1123(a)(4). But some of our sister circuits have given more guid- ance. The Third Circuit has concluded that equal treatment does not require “precise equality, only approximate equality,” and that “[c]ertain procedural differences” do not constitute unequal treatment. In re W.R. Grace & Co.,729 F.3d 311, 327
(3d Cir. 2013). For its part, the D.C. Circuit has held that equal treatment prohibits disparate treatment with respect to value, thus prohibit- ing the payment of different settlements to co-class members or a require- ment that some class members tender more valuable consideration for the same settlement. See AOV Indus., Inc.,792 F.2d at 1152
; see also In re Quigley Co., Inc.,437 B.R. 102, 146
(Bankr. S.D.N.Y. 2010) (“Equality of treatment
involves two facets: (1) all class members must receive equal value, and (2)
each class member must pay the same consideration in exchange for its dis-
tribution.”).
Although we decline to delimit the exact scope of § 1123(a)(4) today,
we hold that the inclusion of the Plan indemnity violated the Code’s require-
ment of equal treatment. All members of Classes 3 and 4 received the settle-
ment indemnity, but the expected value of the indemnity varied dramatically
depending on whether members had participated in the 2020 Uptier. To class
members like the Prevailing Lender plaintiffs, the indemnity was potentially
worth millions or even tens of millions of dollars. But to other class members
like Citadel that had no involvement with the uptier, the indemnity was worth
little or even nothing. Thus, some class members received settlements with
higher effective values than their co-class members. Cf. AOV Indus., 79 F.2d
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at 1152; Quigley, 437 B.R. at 146. Given this differential, the Plan indemnity
constituted impermissible unequal treatment.22
2
SSB and the Prevailing Lender plaintiffs challenge this conclusion,
but their arguments are all meritless.
To begin with, it is of no concern that the Plan nominally awarded the
indemnity to all members of Classes 3 and 4. Following the decisions of our
sister circuits, we look below the surface to determine whether the distribu-
tions were in fact equal in value.23 Here, differences in the expected value of
the indemnity meant that distributions to the members of Classes 3 and 4
were not equal. Such variance likely ran to seven or eight figures, and there-
fore went far beyond “approximate equality.” Cf. W.R. Grace & Co., 729 F.3d
at 327.
Second, the unequal treatment in this case implicates both oppor-
tunity and result. Citing W.R. Grace & Co., the Prevailing Lender plaintiffs
argue that § 1123(a)(4) requires “equal opportunity,” not equal results, and
_____________________
22
Our analysis in this paragraph adopts an objective approach to equal treatment,
wherein we consider the impact of the indemnity without regard to what one might label
the subjective intent of the Plan’s drafters. If we cared for intent, we would easily find un-
equal treatment. As this opinion has already laid out in exhaustive detail, the indemnity was
awarded to Class 3 and Class 4 members to gain the voting approval of only some of those
members (e.g., the Prevailing Lender plaintiffs). Because the Plan awarded an indemnity
intended to benefit only some of those members, it did not provide equal treatment.
23
Taking this argument to its logical extent, any special gift could be recharacter-
ized as equal treatment. For example, consider a plan that awarded an extra $5 million to
every member of Class 3 who had its headquarters in Louisiana. That would obviously be
unequal treatment. But what if the plan simply provided that every member of Class 3 gets
a note promising payment of $5 million in one year if the member is headquartered in Lou-
isiana? Under the appellees’ argument, this plainly improper provision would be fine. We
decline to adopt such a restrictive view of equal treatment.
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that the distribution of the indemnity to all Class 3 and 4 members accom-
plishes such equality. See Green Brief at 59, No. 23-20363 (citing 729 F.3d at
327). But W.R. Grace & Co. discussed equal opportunity in the context of a Second Circuit case in which a class of asbestos plaintiffs were given equal opportunity to present their case to a jury (where their recoveries could dif- fer). See729 F.3d at 327
(citing In re Joint E. & S. Dist. Asbestos Litig.,982 F.2d 721, 749
(2d Cir. 1992)). The difference between this case and the asbestos
case is obvious. In In re Joint Eastern & Southern Dist. Asbestos Litigation, eve-
ryone in the relevant class suffered injuries from asbestos, whereas not eve-
ryone in Classes 3 and 4 has liability from the 2020 Uptier. A better analogy
would be a plan distribution by which all class members were given the op-
portunity to litigate their asbestos injuries, but only half had such injuries. We
do not think that our sister circuits would find such an arrangement compliant
with § 1123(a)(4).
Finally, both SSB and the Prevailing Lender plaintiffs point to a 1995
decision from the Middle District of North Carolina, where the bankruptcy
court held that a plan treated all class members equally, although the conse-
quence of its distributions was to give only one creditor majority equity con-
trol. See In re Piece Goods Shops Co., 188 B.R. 778, 790(Bankr. M.D.N.C. 1995). Accordingly, they argue that disparate value is sometimes permissible. However, the bankruptcy court in that case was clear that such “special con- trol benefits” flowed not from the unequal treatment of claims, “but rather from the natural consequences of corporate law.” Ibid.; see alsoibid.
(“Accord-
ingly, non-economic attributes of equity ownership should not be germane to
the analysis of equality of treatment under Section 1123(a)(4) of the Bank-
ruptcy Code. Otherwise, it would be impossible to confirm any plan under
which a creditor receives a controlling percentage of the stock of a reor-
ganized corporate debtor.”). Here, the disparate value flowed not from cor-
porate law, but from the intentional actions of the Prevailing Lender plaintiffs
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through their participation in the 2020 Uptier. So Piece Goods Shops does not
save the Plan indemnity.
D
The remedy for the aforementioned violations follows directly from
our earlier discussion of equitable mootness. On review of a confirmed plan,
we may “‘fashion whatever relief is practicable’ for the benefit of appellants.”
In re Scopac, 649 F.3d 320, 322(5th Cir. 2011) (quoting Pac. Lumber,584 F.3d at 241
); see also Highland Cap. Mgmt.,48 F.4th at 431
(“[T]he court may fash-
ion the remedy it sees fit without upsetting the reorganization.”). Here, we
choose to excise the offending indemnity in Section 8.5 of the Plan. So in 23-
20451 and 23-20363, we REVERSE the bankruptcy court’s final order con-
firming the Plan insofar as it approved the Plan’s indemnity relating to the
2020 Uptier.
V
The 2020 Uptier was the first major uptier. See Buccola & Nini, supra,
at 502. But it was far from the last. See id. at 503. And while the loan market
has seen an increase in contracts blocking uptiers (so-called “uptier block-
ers”) since 2020, see id. at 512–13, 521–22, there are doubtless still many con-
tracts with open market purchase exceptions to ratable treatment, see id. at
502, 510. Though every contract should be taken on its own, today’s decision
suggests that such exceptions will often not justify an uptier.
In 23-20181, we REVERSE the judgment of the bankruptcy court. In
23-20450, we DISMISS the LCM Lenders from that appeal and VACATE
the judgment of the bankruptcy court in part and REMAND for considera-
tion of the Excluded Landers’ counterclaims. In 23-20451 and 23-20363, we
REVERSE the confirmation order of the bankruptcy court in part insofar as
it approved the Plan’s indemnity related to the 2020 Uptier.
54
Reference
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