On October 29, 2014, the US Court of Appeals for the Second Circuit in In re BGI, Inc. expanded the equitable mootness doctrine by holding that it applies to liquidation proceedings under Chapter 11 of the Bankruptcy Code (Nos. 13-2226-bk, 13-2288-bk, 13-2300-bk, (2d Cir. Oct. 29, 2014)).

In 2011, the former book retailer BGI Inc., f/k/a Borders Group. Inc. and its affiliates (Borders) filed for reorganization under Chapter 11 of the Bankruptcy Code. When its efforts at reorganization proved unsuccessful, Borders filed a Chapter 11 liquidation plan and the required disclosure statement to allow interested parties to evaluate the plan. The bankruptcy court approved Borders' proposals to disseminate the disclosure statement and give notice of the confirmation hearing. Following the confirmation hearing, the bankruptcy court confirmed the liquidation plan and directed that it be put into effect.

Appellants, holders of unused consumer gift cards issued by Borders, then moved to file late claims and to certify a class of all gift card holders. The bankruptcy court denied the appellants' motions. On review, the US District Court for the Southern District of New York dismissed the appeals as equitably moot.

The Second Circuit affirmed. In reaching its decision, the court concluded that the equitable mootness analysis in Chapter 11 reorganization proceedings also applies to appeals arising from Chapter 11 liquidation proceedings.

The court explained that the equitable mootness doctrine is a basis for dismissing certain appeals from bankruptcy court orders due to the need for finality. In the context of a reorganization proceeding, a bankruptcy appeal is presumed equitably moot when the debtor's reorganization plan has been "substantially consummated" as defined by the Bankruptcy Code (11 U.S.C. §1101(2)). However, the presumption can be overcome if certain factors are met.

Finding no reason to treat liquidation plans differently, the court held that the appellants were subject to the presumption of equitable mootness created by the liquidation plan's substantial consummation and failed to rebut the presumption.

Practitioners should be aware that the Second Circuit has joined other circuits, including the Fourth, Fifth and Tenth Circuits, in applying the equitable mootness doctrine to Chapter 11 liquidation proceedings.