Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-21-2003

In Re: Zenith Elec
Precedential or Non-Precedential: Precedential

Docket 02-2078




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"In Re: Zenith Elec " (2003). 2003 Decisions. Paper 503.
http://digitalcommons.law.villanova.edu/thirdcircuit_2003/503


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                         PRECEDENTIAL

                                   Filed May 21, 2003

       UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT


                   No. 02-2078


   IN RE: ZENITH ELECTRONICS CORPORATION,
                              Debtor


                  U.S. TRUSTEE
                         v.
 THE OFFICIAL COMMITTEE OF EQUITY SECURITY
                      HOLDERS
    (District of Delaware Civil No. 99-cv-00747)


                  U.S. TRUSTEE
                         v.
THE UNOFFICIAL COMMITTEE OF EQUITY SECURITY
                      HOLDERS
    (District of Delaware Civil No. 00-cv-00399)
             Donald F. Walton, Acting United
             States Trustee For Region 3, Appellant

  On Appeal From the United States District Court
           For the District of Delaware
    (District Judge: Honorable Gregory M. Sleet)

               Argued April 7, 2003
                                   2



         Before: BECKER, Chief Judge,* BARRY and
                  BRIGHT,** Circuit Judges.

                      (Filed: May 21, 2003)
                          ROBERT D. McCALLUM, Jr.
                          Assistant Attorney General
                          COLM F. CONNOLLY
                          United States Attorney
                          WILLIAM KANTER
                          FRANK A. ROSENFELD
                          United States Department of Justice
                          Civil Division, Appellate Staff
                          601 D Street, NW
                          Washington, DC 20530-0001
                          P. MATTHEW SUTKO (Argued)
                          Office of the General Counsel
                          Executive Office for
                           United States Trustees
                          20 Massachusetts Avenue, NW
                          Washington, DC 20530
                          JOSEPH J. McMAHON, JR.
                          United States Department of Justice
                          Office of the Trustee
                          844 King Street
                          Suite 2313, Lockbox 35
                          Wilmington, DE 19801
                            Attorneys for Appellants




* Judge Becker completed his term as Chief Judge on May 4, 2003.
** Honorable Myron H. Bright, United States Circuit Judge for the Eighth
Circuit, sitting by designation.
                             3


                      HARLEY J. GOLDSTEIN (Argued)
                      Katten Muchin Zavis Rosenman
                      525 West Monroe Street
                      Suite 1600
                      Chicago, Illinois 60661
                      NORMAN L. PERNICK
                      J. KATE STICKLES
                      Saul Ewing, LLP
                      222 Delaware Avenue
                      Suite 1200
                      Wilmington, DE 19801
                        Attorneys for Appellees


                OPINION OF THE COURT

BECKER, Circuit Judge.
   This appeal from the order of the District Court,
dismissing the U.S. Trustee’s (the “Trustee”) appeal of the
Bankruptcy Court’s grant of certain professional fees and
expenses incurred by the Unofficial Committee of Equity
Security Holders (the “Unofficial Committee”) in furtherance
of its effort to have the Bankruptcy Court order the
appointment of an official committee of equity security
holders, presents important questions as to the scope of the
equitable mootness doctrine. The District Court determined
that the Trustee’s appeal was equitably moot after
analyzing the five prudential factors discussed in In re
Continental Airlines, 

, 560 (3d Cir. 1996) (en
banc)[hereinafter Continental I]. We conclude that the
District Court abused its discretion in making that
determination for a number of reasons, the most significant
of which was its decision that the first and most important
Continental factor, i.e., whether the reorganization plan had
been “substantially consummated,” favored a finding of
equitable mootness, even though a successful appeal would
have only a minor impact on and, at all events, could not
result in the unraveling of the plan. As we explained in
Nordhoff Invs. Inc. v. Zenith Elecs. Corp., 

, 185
(3d Cir. 2001), the equitable mootness doctrine is to be
                                     4


applied only in order to “prevent[ ] a court from
unscrambling complex bankruptcy reorganizations when
the appealing party should have acted before the plan
became extremely difficult to retract.”
  The District Court also abused its discretion in
determining that even if equitable mootness does not apply
to the Trustee’s appeal, that appeal should be dismissed on
the basis of “other equitable considerations.” There is no
jurisprudence in this Circuit that would allow a court to
eschew exercise of its proper jurisdiction by refusing to
entertain an appeal it has the power to hear on the basis
of an ad hoc balancing of self-selected “equitable
considerations,” and we are not inclined to fashion such.
We will therefore reverse the judgment of the District Court
and remand for consideration of the Trustee’s appeal.1

1. Appellees also assert that this appeal is constitutionally moot because
the Unofficial Committee no longer exists and therefore this Court
cannot grant “any effective relief ” to the Trustee. See In re Cantwell, 

, 1053 (3d Cir. 1981). We have determined that an appeal is
constitutionally moot “only if events have taken place that make it
‘impossible for the court to grant any effectual relief whatever.’ ” In re
United Artists Theatre Co. v. Walton, 

, 226 (3d Cir. 2003)
(quoting Church of Scientology of Cal. v. United States, 

, 12
(1992)). Such is not the case here. Without venturing into what the
Trustee aptly characterizes as the “bevy of metaphysical questions”
raised by what it means to dissolve an unofficial committee, we note that
other parties to this appeal — the Professionals themselves (Katten
Muchin Zavis Rosenman, Saul Ewing, and Ernst & Young) — clearly
continue to exist, and by ordering them to disgorge the fees and costs at
issue here, the Bankruptcy Court will be able to furnish some form of
effectual relief to the Trustee, which is all that we require. In Isidor
Paiewonsky Assoc. v. Sharp Props., Inc., 

, 151 (3d Cir.
1993), we concluded that as long as a court is in a position to grant one
of the forms of relief requested, a case is not constitutionally moot.
(“[W]hen a court can fashion ‘some form of meaningful relief,’ even if it
only partially redresses the grievances of the prevailing party, the appeal
is not moot.” 

(quoting Church of Scientology of 

)). Therefore, because the Bankruptcy Court can order the
Professionals to disgorge the monies requested by the Trustee, the
appeal is not constitutionally moot.
  We also note that notwithstanding the confirmation order, the
Bankruptcy Court specifically retained jurisdiction to act on “any request
for payment of any Administrative Claim and the resolution of any and
all objections to the allowance or priority of Claims. . . ,” thereby
retaining jurisdiction over the matter of the fees at issue in this appeal.
Appellant’s Supplemental Brief, Exhibit A, p. 27.
                             5


          I. Factual and Procedural Background

                            A.
   In August of 1999, the Zenith Electronics Corporation
(“Zenith”) filed a voluntary petition for bankruptcy under
Chapter 11. The proposed reorganization plan was
“prepackaged”: the details had been negotiated in advance
between Zenith and its principal shareholder, LG
Electronics (“LGE”), which owned 58% of Zenith’s stock and
had lent millions of dollars to the company. The plan
required, inter alia, cancelling Zenith’s stock for no
consideration, issuing new Zenith stock to LGE in return
for $200 million in debt relief, exchanging $103 million in
bonds bearing interest at 6.25% for $50 million in new
bonds bearing interest at 8.19%, refinancing of bank debt,
and an extension by LGE to Zenith of $60 million in new
credit.
  Zenith’s minority shareholders, whose shares were to be
canceled under the plan, objected. The largest of these
shareholders, Nordhoff Investments, opted to represent its
own interests, and the remaining minority shareholders
formed an unofficial committee of equity security holders to
represent them. Three days after the bankruptcy petition
was filed, the Unofficial Committee moved the Bankruptcy
Court to order the appointment of an official committee of
equity security holders under 11 U.S.C. § 1102(a)(2).
However, at an August 27, 1999 hearing, the United States
Trustee objected to the formation of an official committee,
arguing that such a committee was unnecessary, as the
company was insolvent and the stock of all the potential
committee members was to be canceled under the
reorganization plan. The Bankruptcy Court rejected this
argument and ordered the Trustee to appoint the official
committee. The Trustee complied, but also appealed this
decision and moved the District Court for a stay pending its
appeal of the order appointing the official committee. The
District Court denied a stay, and the appeal of the
appointment order remained pending.
  The Bankruptcy Court then held an expedited hearing on
confirmation of the proposed reorganization plan. Central to
                              6


this hearing was a disagreement over the proper valuation
of Zenith. Nordhoff and the Official Committee argued that
the company was worth $1.05 billion, while the debtor’s
expert valued it at $300 million. The Bankruptcy Court
agreed with the debtors, and on November 2, 1999, it
approved the reorganization plan. The confirmation order
included a provision dissolving all committees.
   Ten days after the dissolution of the Official Committee,
several professional advisors to the Unofficial and Official
Committees, including two law firms and an accounting
firm (the “Professionals”), applied for compensation and
reimbursement of expenses out of the estate for work
performed both for the Unofficial Committee in its efforts to
obtain appointment of the Official Committee, and for the
Official Committee after its September 8, 1999 formation.
While Patricia Staiano, the Trustee, did not contest the fees
sought for work on behalf of the Official Committee, she
challenged the Professionals’ request for fees relating to
their work for the Unofficial Committee, arguing that this
work did not meet the statutory requirement that the fee-
seeking Professionals “make a substantial contribution” to
the case. See 11 U.S.C. §§ 503(b)(3)(D), (b)(4). The
Bankruptcy Court nonetheless granted the Professionals
$76,500 in fees and $867.15 in expenses for their work for
the Unofficial Committee, and $437,250 in fees and
$85,024.45 in expenses for their work for the Official
Committee. The Trustee appealed this fee order to the
District Court.

                             B.
  The District Court dismissed the Trustee’s appeal of the
fee order on the basis of the doctrine of equitable mootness,
under which “courts have held that ‘[a]n appeal should . . .
be dismissed as moot when, even though effective relief
could conceivably be fashioned, implementation of that
relief would be inequitable.’ ” Continental 

(quoting Official Comm. of Unsecured Creditors of LTV
Aerospace & Defense Co. v. Official Comm. of Unsecured
Creditors of LTV Steel Co. (In re Chateaugay Corp.), 

, 325 (2d Cir. 1993) [hereinafter Chateaugay I]. In
coming to this conclusion, the District Court applied the
                              7


five-factor test for equitable mootness laid out by this Court
in Continental I. The District Court held that the first two
factors, whether the plan was substantially consummated
and whether a stay was obtained, favored a finding of
equitable mootness; that the third and fourth factors,
whether the requested relief would affect the rights of
parties not before the court or the success of the plan,
militated against equitable mootness; and that the fifth
factor, the public policy of affording finality to bankruptcy
judgments, was “arguably neutral.” In re Zenith Electronics
Corp., 

, *12 (D. Del. 2002).
Because the first two factors “are given great weight by the
courts,” the District Court concluded that while
“quantitatively, the equitable mootness factors may weigh
against dismissal, qualitatively, those that weigh in favor of
dismissing the appeal outweigh those that do not.” 

*13.
  In addition, relying on language from a decision of the
Court of Appeals for the Ninth Circuit, In re S.S. Retail
Stores Corp., 

(9th Cir. 2000), the District
Court determined that even if the Trustee’s appeal is not
equitably moot, the Court may nonetheless “exercise[ ]
discretion to dismiss the appeal on equitable grounds.” In
re Zenith Electronics Corp., 

,
*12. It then enumerated other equitable factors that weigh
in favor of dismissal, including the fact that no other party
had appealed the fee order, that the Equity Committee
claimed that it had tried to resolve the issue through
negotiation with the Trustee, but that the Trustee had
rejected this attempt without explanation, and that fairness
dictated the payment of fees. On the basis of its
conclusions that equitable mootness applied to this case
and that “other equitable considerations” also commanded
that the appeal be dismissed, the District Court granted the
Unofficial Committee’s motion to dismiss the fee order
appeal.
  The Bankruptcy Court had jurisdiction under 28 U.S.C.
§§ 157(a) and (b) and the District Court had jurisdiction to
hear the Trustee’s appeal of the Bankruptcy Court’s order
under 28 U.S.C. § 158(a). This Court has jurisdiction under
28 U.S.C. § 158(d). We review the District Court’s legal
                              8


determinations de novo and its factual determinations for
clear error. See In re O’Brien Envtl. Energy, Inc., 

, 122 (3d Cir. 1999). Because the District Court’s
application of the equitable mootness doctrine “involves a
discretionary balancing of equitable and prudential factors
rather than the limits of the federal courts’ authority under
Article III,” we review that decision for abuse of discretion.
Continental 

.

                   II. Equitable Mootness

                             A.
   The primary question raised by this appeal is whether the
District Court properly applied the doctrine of equitable
mootness in dismissing the Trustee’s appeal. In general
terms, equitable mootness dictates that an appeal should
be dismissed, even if a court has jurisdiction and is in a
position to grant relief, if “ ‘implementation of that relief
would be inequitable.’ ” In re PWS Holding Corp., 

, 236 (3d Cir. 2000)(quoting Chateaugay 

.) As we observed in Continental I and PWS, “the use of
the word ‘mootness’ as a shortcut for a court’s decision that
the fait accompli of a plan confirmation should preclude
further judicial proceedings has led to unfortunate
confusion” between equitable mootness and Article III
mootness. Continental 

. The latter concept
applies to situations in which the Article III case or
controversy requirement cannot be satisfied because
circumstances are such that it is “impossible for the court
to grant ‘any effectual relief whatever,’ ” Church of
Scientology of Cal. v. United States, 

, 12
(1992)(quoting Mills v. Green, 

, 653 (1895)),
rather than situations in which a court is in a position to
grant relief, but declines because to do so would lead to a
perverse outcome.
  In Continental I, we enumerated five factors “that have
been considered by courts in determining whether it would
be equitable to reach the merits of a bankruptcy 

. These include:
                                   9


     (1) whether the reorganization plan has been
     substantially consummated, (2) whether a stay has
     been obtained, (3) whether the relief requested would
     affect the rights of parties not before the court, (4)
     whether the relief requested would affect the success of
     the plan, and (5) the public policy of affording finality
     to bankruptcy judgments.

noted in PWS, “[t]hese factors are given varying
weight, depending on the particular circumstances, but the
foremost consideration is whether the reorganization plan
has been substantially 

. We
have also explained that the doctrine is “limited in scope”
and must be “cautiously applied.” Continental 

.
  In Continental I and later cases, this Court has provided
guidance for applying these prudential factors in evaluating
whether equitable mootness is appropriate. This is
particularly true of the crucial first factor. Specifically, we
made clear, in both Continental I and PWS, that the first
factor does not merely entail a formalistic inquiry into
whether the plan has been substantially consummated
under the definition in the Bankruptcy Code.2 To be sure,
satisfaction of the Bankruptcy Code definition is a first step
in applying this factor, but it is not sufficient. In
Continental I, for example, the plan had been substantially
consummated under the Code definition; the investors’
capital was in place and all elements of the plan had been
completed. More significant to the Court’s determination
that the appeal was equitably moot, however, was the fact
that “a reversal of the order confirming the Plan likely
would put Continental back into bankruptcy.” Continental 

. The Court’s decision in that case, therefore,
was based not merely on the fact that the plan had been
substantially consummated in a definitional sense, but

2. The Bankruptcy Code defines “substantial consummation” as: “(A)
transfer of all or substantially all of the property proposed by the plan
to be transferred; (B) assumption by the debtor or by the successor to
the debtor under the plan of the business or of the management of all
or substantially all of the property dealt with by the plan; and (C)
commencement of distribution under the plan.” 11 U.S.C. § 1101(2).
                                   10


rather on the probability that granting the appeal would
unravel the plan, upon which numerous parties were at
that point in reliance.3
  PWS is especially instructive on this point. In that case,
as in Continental I, the plan had been substantially
consummated under the Code definition. W.R. Huff Asset
Management Co. appealed the District Court’s order
confirming the plan on a number of grounds, including the
fact that it contained releases that may have violated the
absolute priority rule of 11 U.S.C. § 1129(b)(2)(B)(ii). The
debtors argued that Huff ’s appeal was equitably moot,
because the reorganization had gone forward. As in
Continental I, the key question addressed by the PWS panel
was not simply whether the plan had been substantially

3. The airline had entered into an agreement in which investors had
committed $450 million to the reorganized entity. One of the conditions
to this agreement was a limitation on the amount and nature of
liabilities and administrative expenses attributable to the reorganized
company. Continental’s expert testified at the confirmation hearing that
if the Trustees’ administrative claims, which totaled approximately $117
million, were allowed, the total amount of administrative claims against
the reorganized company would exceed the “cap” set by the Investors,
“allowing the Investors to walk away from the deal.” Continental 

. The Trustees did not dispute the fact that if successful,
their claims “would have given the Investors the option to withdraw,”
and that such withdrawal “would have placed the entire Plan in
jeopardy.” 

  The size and intricacy of the plan weighed heavily in the en banc
Court’s determination that the Trustees’ appeal was equitably moot.
Specifically, “[w]ithout listing all . . . transactions set forth by
Continental in its brief, we note that among those are the distribution to
unsecured creditors, the merger of 53 debtors other than Continental
with and into Continental, the investment of $110 million in cash by Air
Partners and Air Canada in the reorganized Continental, the transfer by
foreign governments of various route authorities, and the assumption by
the reorganized Continental of unexpired leases and executory contracts
worth over $5.0 billion.” 

It was the fact that the Trustees’
appeal might have unraveled this extremely complex reorganization plan,
rather than the formal substantial confirmation of the plan, that led the
Court to conclude that there were “no prudential considerations that
would support an attempt by an appellate court, district or court of
appeals, to fashion even a limited remedy for the Trustees.” 

                              11


consummated according to the Code definition, but rather
whether “the appeal, if successful, would necessitate the
reversal or unraveling of the entire plan of 

.
   Because the panel determined that a successful appeal
would not “ ‘knock the props out from under the
authorization for every transaction that has taken place,’ ”
and that there were “intermediate options” short of undoing
the entire plan, it declined to dismiss the appeal as
equitably moot. 

re Chateaugay Corp., 

, 780 (S.D.N.Y. 1994)). The panel concluded that
while “[t]he plan has been substantially consummated . . .
the plan could go forward even if the releases were struck,
and Huff ’s reply brief suggests that it now seeks only
alterations to the plan rather than an unraveling of the
reorganization.” In re 

. See also In
re United Artists Theatre Co., 

, 228 (3d Cir.
2003) (holding that the substantial consummation factor
weighed against equitable mootness, despite the fact that
the plan satisfied the Bankruptcy Code definition, because
the relief sought “does not undermine the Plan’s
foundation”).
  This Court’s decision in Nordhoff Invs. Inc. v. Zenith Elecs.
Corp., 

(3d Cir. 2001), underscores the point.
In that case, which also grew out of the Zenith bankruptcy
before us now, Nordhoff challenged the reorganization plan
on the ground that, inter alia, the Bankruptcy Court had
relied on an incorrect valuation of Zenith’s assets in
approving the plan. In analyzing the substantial
consummation factor, the panel began by observing that
the Bankruptcy Code definition had been satisfied. The
bulk of the panel’s discussion, however, focused on the
question whether the plan was so “simple” that it could be
“easily reversed.” 

The Court concluded that
    Although the plan here is not as complex as the plan
    in Continental Airlines, it is hardly simple. The plan
    required eighteen months of negotiation between
    several parties regarding hundreds of millions of
    dollars, restructured the debt, assets, and management
    of a major corporation, and successfully rejuvenated
    Zenith. Appellants have not offered any evidence that
                             12


    the plan could be reversed without great difficulty and
    inequity, and we have reason to believe that the bond
    redistribution is unretractable.

ground that the appeal, if successful, would
unravel a fairly complicated reorganization plan, the
Nordhoff Court upheld the District Court’s decision that the
substantial consummation factor favored a finding of
equitable mootness.
   The application of the four other prudential factors is
straightforward, keeping in mind that the factors “are given
varying     weight,    depending      on    the     particular
circumstances,” and that the first factor is “foremost,”
especially “ ‘where the reorganization involves intricate
transactions . . . or where outside investors have relied on
the confirmation of the plan.’ ” In re 

(quoting Continental 

-61). In applying these
prudential factors, a court must remain mindful that the
underlying purpose of the doctrine is to “prevent[ ] a court
from unscrambling complex bankruptcy reorganizations
when the appealing party should have acted before the plan
became extremely difficult to retract.” 

.

                             B.
  In concluding that the Trustee’s appeal was equitably
moot, the District Court considered the five Continental
factors, holding that the first two favored dismissal, the
third and fourth favored allowing the appeal, and the fifth
was neutral. We conclude that the District Court abused its
discretion both in its consideration of the “substantial
consummation” factor and in its overall application of the
equitable mootness doctrine.
  As explained above, the first, and most important factor
does not call merely for a formalistic inquiry into whether
the plan has been substantially consummated under the
Bankruptcy Code definition. Rather, the critical question
under the first factor is whether, if successful, the appeal
might unravel the reorganization plan. As the District Court
observed, it is clear that, in a definitional sense, the plan
has been substantially consummated. By November 9,
                              13


1999, most of the relevant transactions were completed.
This, however, was the extent of the District Court’s
discussion of this factor. In lieu of providing a complete
analysis, the District Court referred to a more detailed
explanation   of   why    the    plan   was    substantially
consummated contained in a previous opinion regarding
the Zenith bankruptcy. In re Zenith Electronics Corp., 

, *8-9 (D. Del. 2002).
   In that opinion, In re Zenith Electronics Corp., 

, 214 (D. Del. 2000), the Court did deal with this factor
in more detail, noting that while reversal of aspects of the
reorganization plan was “feasible,” the bond exchange
presented “a more difficult problem.” The Court concluded
that “there is no question that the Plan has been
substantially consummated. Although some of the Plan
transactions could conceivably be ‘reversed,’ this would not
be easy to accomplish, and other transactions may not be
reversible at all.” 

with borrowing the
analysis from this related case and applying it to the case
at bar is that the circumstances of the two cases are
crucially different. In the earlier case, Nordhoff ’s appeal, if
successful,     would    have     required   unraveling    the
reorganization plan. The same cannot be said of the
Trustee’s appeal. Here, the Trustee seeks the disgorgement
of $76,500 in professional fees, a tiny sum in the context of
the reorganization of a company valued at $300 million. Far
from causing the reorganization plan to unravel, the
Trustee’s appeal, if successful, would return money to the
estate. Just as in PWS, a successful appeal in this case
would not “knock the props out from under the
authorization for every transaction that has taken place,”
and in fact would leave the plan entirely intact.
   We therefore conclude that the District Court abused its
discretion   in    determining      that   the    “substantial
consummation” factor favored dismissing the appeal as
equitably moot. While the Court properly applied the
remaining factors, the fact that it erred in applying the first
factor, which is “foremost,” led it wrongly to conclude that
the appeal was equitably moot. Because only the second
factor, whether a stay was obtained, even arguably favors a
finding that the appeal is equitably moot, a proper
                                    14


balancing of the five factors necessitates allowing the appeal.4
We come to this determination not only on the basis of the
individual factors themselves, however, but also because
the underlying purpose of the equitable mootness doctrine,
which exists to “prevent[ ] a court from unscrambling
complex bankruptcy reorganizations when the appealing
party should have acted before the plan became extremely
difficult to retract,” is not implicated here. 

.

     III. The Impact of “Other Equitable Considerations”
  In addition to finding it equitably moot, the District Court
provided an alternate ground for its dismissal of the
Trustee’s    appeal,    holding     that   “other    equitable
considerations” dictate dismissal as well. In coming to the
conclusion that even if equitable mootness does not apply
here, the appeal should be dismissed, the District Court
relied on the decision of the Court of Appeals for the Ninth
Circuit in In re S.S. Retail Stores Corp., 

(9th
Cir. 2000). In that case, which also concerned an appeal for
the disgorgement of attorney’s fees, the Court held that

4. The “stay” factor cannot be given much weight in our consideration of
this case because, as the Trustee’s appeal would not necessitate an
unraveling of the plan, there was little reason for the Trustee to have
requested a stay. As one Court has noted, the “stay” factor is “largely
duplicative of the ‘substantial confirmation’ factor . . . ,” In re Zenith
Electronics Corp., 

, 214 (D. Del. 2000), in the sense that a
plan cannot be substantially consummated if the appellant has
successfully sought a stay. Therefore, the “stay” factor is designed to
safeguard the same interests as the “substantial consummation” factor
and should only weigh heavily against the appellant if, by a failure to
secure a stay, a reorganization plan was confirmed, the existence of
which is later threatened by the appellant’s appeal. That is not the
situation here.
  As for the remaining Continental factors, the District Court correctly
concluded that the third and fourth factors — whether the requested
relief would affect the rights of parties not before the court or would
impact the success of the plan — militated against a finding of equitable
mootness, while the fifth factor, the public policy of affording finality to
bankruptcy judgments, was “arguably neutral.” In re Zenith Electronics
Corp., 

, *9-11 (D. Del. 2002).
                                   15


even if equitable mootness does not apply in a particular
situation, “a court may still hold that the equities weigh in
favor of dismissing the appeal.” 

In an analysis
separate from its equitable mootness discussion, the S.S.
Retail Court found that “it would be inequitable to require
[the attorneys] to disgorge the bankruptcy court’s award of
fees and expenses,” and dismissed the appeal on that
ground. 

doing, the Court declined to reach the
merits of Trustee’s argument that the debtor’s attorney was
not a “disinterested person,” as required by 11 U.S.C.
§ 101(14), and therefore should never have been employed
as the Debtor’s counsel.
   While the District Court relied on the logic of S.S. Retail
Stores, that case does not represent the law of this Circuit.
It is a general rule that when a court has jurisdiction to
hear an appeal, it has a “virtually unflagging obligation” to
exercise    that   jurisdiction.   Colorado    River    Water
Conservation Dist. v. United States, 

, 817
(1976); see also Continental 

(Alito, J.,
dissenting). The doctrine of equitable mootness carves out
an exception to this general rule, but it is a very limited
and well-defined exception. The doctrine has been carefully
developed to apply only in that rare situation in which a
successful appeal would undo a complicated plan of
reorganization. It would make little sense, in light of this
carefully considered doctrine, and in light of our “virtually
unflagging obligation” to exercise our jurisdiction, to allow
courts to dismiss appeals on the basis of an ad hoc
weighing of the equities of a successful appeal. Therefore,
we conclude that to the extent that the District Court relied
on “other equitable considerations,” outside of those it took
into account in its equitable mootness discussion, to
dismiss the Trustee’s appeal, it abused its discretion.5

5. We are also unconvinced of the merit of the other equitable
considerations relied upon by the District Court. We cannot see how the
facts that no other party appealed the fee order, that the Trustee failed
to explain why she declined to negotiate a solution to this problem with
the Equity Committee, or that, under some circumstances, fairness may
dictate the payment of fees, could weigh so heavily against the Trustee
that a court would decline to entertain her appeal, despite its power to
hear it.
                             16


  The judgment of the District Court will be reversed and
the case remanded for further proceedings.

A True Copy:
        Teste:

                  Clerk of the United States Court of Appeals
                              for the Third Circuit