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In re Johnson

United States Court of Appeals, Sixth Circuit

April 16, 2018

In re: John Joseph Louis Johnson, III, Debtor.

          Argued: November 14, 2017

          Appeal from the United States Bankruptcy Court for the Southern District of Ohio at Columbus. No. 14-57104-John E. Hoffman, Jr., Judge.

         ARGUED:

          Jeffrey M. Levinson, LEVINSON LLP, Cleveland, Ohio, for Appellant.

          Rocco I. Debitetto, HAHN LOESER & PARKS, LLP, Cleveland, Ohio, for Appellee.

         ON BRIEF:

          Jeffrey M. Levinson, LEVINSON LLP, Cleveland, Ohio, for Appellant.

          Rocco I. Debitetto, Marc J. Kessler, Daniel A. DeMarco, Jeffrey A. Yeager, HAHN LOESER & PARKS, LLP, Cleveland, Ohio, for Appellee.

          Before: HARRISON, OPPERMAN, and WISE, Bankruptcy Appellate Panel Judges.

          OPINION

          MARIAN F. HARRISON.

         Bankruptcy Appellate Panel Judge. RFF Family Limited Partnership, LP ("RFF") appeals from the bankruptcy court's Order Confirming the Third Amended Plan of Reorganization ("Confirmed Plan") of John Joseph Louis Johnson, III ("debtor"). The debtor argues that this appeal is constitutionally and equitably moot. Although the bankruptcy court properly confirmed the debtor's Confirmed Plan, the Panel agrees with the debtor that this appeal is equitably moot. For the reasons set forth below, the Panel dismisses the appeal of RFF as equitably moot.

         ISSUES ON APPEAL

         1. Whether this appeal should be dismissed on the grounds of constitutional mootness.

         2. Whether this appeal should be dismissed on the grounds of equitable mootness.

         3. Whether the bankruptcy court erred by concluding that the debtor's Confirmed Plan satisfied the requirements of 11 U.S.C. § 1129(a)(11).[1]

         JURISDICTION

         The United States District Court for the Southern District of Ohio has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798 (1989) (citations and internal quotations omitted). An order overruling objections to and confirming a plan of reorganization is a final order. Gen. Elec. Credit Equities, Inc. v. Brice Rd. Devs., L.L.C. (In re Brice Rd. Devs., L.L.C.), 392 B.R. 274, 278 (B.A.P. 6th Cir. 2008).

         FACTS

         On October 7, 2014, the debtor filed his voluntary petition for relief under Chapter 11. On the petition date, the debtor was and continues to be a professional hockey player with the Columbus Blue Jackets ("Blue Jackets") of the National Hockey League ("NHL"). Pursuant to the debtor's contract ("Player Contract") with the Blue Jackets, his gross income has been $5 million per year since the petition date. The Player Contract's term ends at the conclusion of the 2017-18 NHL season. In anticipation of the income he would be making under the Player Contract, the debtor accumulated a total indebtedness of $21, 343, 723.64 in pre-petition debt. The debtor's eight largest creditors (Capital Financial Holdings, LLC, Capital Holdings Enterprises, LLC, U.S. Congressman Rodney Blum, and CapStar Bank (collectively, the "Initial Settling Lenders"); Pro Player Funding, LLC ("Pro Player") and Cobalt Sports Capital, LLC ("Cobalt") (Cobalt with Pro Player and the Initial Settling Lenders, collectively, the "Settling Lenders"); EOT Advisors, LLC ("EOT"); and RFF) asserted claims in the aggregate amount of approximately $14 million.

         On March 5, 2015, the debtor filed a motion seeking to convert his case to chapter 7. The majority of the debtor's eight largest creditors filed objections. The bankruptcy court conducted a two-day evidentiary hearing in early September 2015 and entered an order denying the motion to convert on February 26, 2016. The bankruptcy court denied the motion based on the debtor's bad faith conduct and his failure to abide by his fiduciary duties. The bankruptcy court found that the debtor failed to engage in good-faith negotiations with his creditors and warned that "the parties should undertake good-faith efforts to resolve their differences so that a consensual plan of reorganization for the Debtor may be confirmed. Failing that, what lies ahead does not look promising-for the Debtor a future clouded by uncertainty, for the Objecting Creditors further delay, and for all parties additional costly litigation." In re Johnson, 546 B.R. 83, 172 (Bankr. S.D. Ohio 2016). In conjunction with the denial of the motion to convert, the bankruptcy court issued an order to show cause why a chapter 11 trustee should not be appointed based on the findings of fact set forth in the opinion and order denying the motion to convert.

         Thereafter, the debtor and the Initial Settling Lenders worked collaboratively over the following six months to reach a settlement embodied in the Confirmed Plan (Class 5A) filed on August 29, 2016. The settlement entails allowing the Initial Settling Lenders' claims in their full face amount and providing for a capped, 35% aggregate recovery during the remaining term of the Player Contract; provided, however, that if the debtor's aggregate gross earnings exceed $4.5 million during the three years after the termination of the Player Contract, the Initial Settling Lenders will also receive 10% of the debtor's future earnings (net of taxes, withholdings, and agreed living expenses) during that period. Under the Confirmed Plan, these amounts are placed into the Class 5A Escrow. The settlement also encompasses a "sub-settlement" among the Initial Settling Lenders, whose claims are subject to varying degrees of merit, as to how Class 5A Escrow amounts are allocated among them.

         The debtor made the same settlement offer to Pro Player, Cobalt, EOT, and RFF (the "Class 5B Creditors"). After further negotiations, Pro Player and Cobalt settled with the debtor by "effectively capping their recovery at approximately 58% of the full face amount of their claims." Under the Confirmed Plan, the Class 5B Creditors participate in distributions from a Creditor Trust. The Class 5B Creditors stand to benefit from any recoveries the appointed Creditor Trustee might obtain from pending adversaries against the debtor's parents and former financial advisors. As a result of the negotiations, six creditors holding more than $12 million of debt supported the Confirmed Plan, and only EOT and RFF still rejected the Confirmed Plan.[2]In approving these settlements as fair and equitable, the bankruptcy court found:

The value of each settlement derives from the fact that the Debtor's estate will avoid incurring an enormous amount of attorneys' fees and expenses that instead will be used to pay creditors' claims. In fact, as the settlement motion with Pro Player shows, the Debtor is estimating that the costs and expenses of litigating with just one creditor would be approximately $250, 000. Thus, the settlements with the four Initial Settling Lenders potentially is saving the estate $1 million. As a result of the settlements with Pro Player and Cobalt, the Debtor is contributing an additional half a million dollars to creditors that he otherwise was anticipating would be used to litigate with those two creditors. The amount is in line with the fees and expenses that the Court could see being incurred in this litigation.

In re Johnson, Ch. 11 Case No. 14-57104, 2016 WL 8853601, at *7, 2016 Bankr. LEXIS 4598, at *19-20 (Bankr. S.D. ...


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