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Borders closed the last of its retail branches on September 20, 2011, and stopped accepting gift cards and conducting e-commerce on its website one week later.Gift card redemptions constituted nearly all of Borders’ net sales during the last month of the company’s operations. Court of Appeals for the Second Circuit considered whether the doctrine of “equitable mootness” applied to the appeal of a confirmation order approving a liquidating chapter 11 plan.

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The Second Circuit then ruled that the district court did not abuse its discretion in dismissing the GC Claimants’ appeals as equitably moot.

According to the Second Circuit: (i) the bankruptcy court’s finding that the chapter 1 1 plan had been substantially consummated was not clear error, because, as of the effective date, Borders had transferred its property to the liquidating trust and the trust had distributed $17 million to creditors; and (ii) the district court did not abuse its discretion in finding that the GC Claimants failed to satisfy at least two of the The Second Circuit explained that the GC Claimants failed to establish that general unsecured creditors, who could be stripped of their recovery if the class were certified, received notice of the appeal.

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According to the court, “[A]llowing [the GC Claimants] to file late claims and certifying a class of Gift Card holders would have a disastrous effect on the remainder of [Borders’ estate] and the final distributions of the Plan.” The GC Claimants appealed the bankruptcy court’s rulings to the district their appeal. The district court later dismissed the GC Claimants’ appeal of the bankruptcy court’s previous rulings denying latefiled claims and class certification as being equitably moot.

Among other things, the district court noted that “[e]ven though Appellants did not appeal confirmation of the Distribution Plan, their requested relief is tantamount to a collateral attack because of the drastic changes to the distributions that would be implicated.” THE SECOND CIRCUIT’S RULING A three-judge panel of the Second Circuit affirmed.

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They later moved the court to certify a class of all holders of Borders gift cards issued prepetition, but they never sought a stay of the effective date of the chapter 11 plan of liquidation.

The bankruptcy court denied both motions in August 2012.

In contrast, the judge-fashioned remedy of “equitable mootness” bars adjudication of an appeal when a comprehensive change of circumstances occurs such that it would be inequitable for a reviewing court to address the merits of the appeal.

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