                FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

IN RE TRANSWEST RESORT                    No. 12-17176
PROPERTIES, INC.,
                             Debtor,        D.C. Nos.
                                         4:12-cv-00024-
                                              RCC
JPMCC 2007-C1 GRASSLAWN                  4:12-cv-00121-
LODGING, LLC,                                 RCC
                     Appellant,

                 v.                       ORDER AND
                                           OPINION
TRANSWEST RESORT PROPERTIES
INCORPORATED; SOUTHWEST VALUE
PARTNERS FUND XV LLP; SWVP LA
PALOMA LLC; SWVP HILTON HEAD
LLC,
                      Appellees.


     Appeal from the United States District Court
              for the District of Arizona
    Raner C. Collins, Chief District Judge, Presiding

                Argued and Submitted
     January 13, 2015—San Francisco, California

               Filed September 15, 2015

    Before: J. Clifford Wallace, Milan D. Smith, Jr.,
      and Michelle T. Friedland, Circuit Judges.
2           IN RE TRANSWEST RESORT PROPERTIES

                           Order;
                 Opinion by Judge Friedland;
             Dissent by Judge Milan D. Smith, Jr.


                           SUMMARY*


                            Bankruptcy

     The panel granted a petition for panel rehearing, withdrew
its prior opinion and dissent, filed a new superseding opinion
and dissent, and denied as moot a petition for rehearing en
banc in a bankruptcy case.

    In its new opinion, the panel reversed the district court’s
decision dismissing on equitable mootness grounds an appeal
from the bankruptcy court’s order confirming a Chapter 11
plan of reorganization. The panel held that even though the
plan had been implemented, a lender’s colorable objections
to the plan were not equitably moot because the lender had
diligently sought a stay, and it would be possible to devise an
equitable remedy to at least partially address the lender’s
objections without unfairly impacting third parties or entirely
unraveling the plan. The panel remanded the case for further
proceedings.

    Dissenting, Judge M. Smith wrote that the district court’s
decision should be affirmed because the remedies the lender
proposed would be grossly inequitable to a third-party
investor and would surely jeopardize the reorganization.

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
           IN RE TRANSWEST RESORT PROPERTIES                  3

                         COUNSEL

David M. Neff (argued) and Eric E. Walker, Perkins Coie
LLP, Chicago, Illinois, for Appellant.

Susan G. Boswell (argued), Quarles & Brady LLP, Tucson,
Arizona; Kasey C. Nye, Mesch, Clark & Rothschild, Tucson,
Arizona; E. King Poor, Quarles & Brady LLP, Chicago,
Illinois, for Appellees.


                           ORDER

   The petition for panel rehearing is granted. The Opinion
and Dissent filed on July 1, 2015, appearing at 791 F.3d
1140, are withdrawn. A new superseding Opinion and
Dissent are being filed concurrently with this Order.

    The petition for rehearing en banc is denied as moot. The
parties may file additional petitions for rehearing or rehearing
en banc.

    The motion for leave to file a reply in support of the
petition for rehearing is denied.



                          OPINION

FRIEDLAND, Circuit Judge:

    We consider whether a lender that made colorable
objections to a plan of reorganization in bankruptcy court and
then diligently sought a stay in order to litigate those
4         IN RE TRANSWEST RESORT PROPERTIES

objections may obtain review of its objections on appeal even
though the plan has been implemented. Because it would be
possible to devise an equitable remedy to at least partially
address the lender’s objections without unfairly impacting
third parties or entirely unraveling the plan, we hold that the
lender’s objections are not equitably moot and should be
considered on appeal. We thus reverse the district court’s
decision dismissing the appeal on equitable mootness grounds
and remand for further proceedings.

                              I.

                      A. Background

   In 2007, five related entities acquired the Westin Hilton
Head Resort and Spa and the Westin La Paloma Resort and
Country Club. The five entities (collectively “Debtors”)
were: Transwest Hilton Head Property, LLC, and Transwest
Tucson Property, LLC (collectively “Operating Debtors”);
Transwest Hilton Head II, LLC, and Transwest Tucson II,
LLC (collectively “Mezzanine Debtors”); and Transwest
Resort Properties, Inc. (“Holding Company Debtor”). The
Holding Company Debtor was the sole owner of each of the
Mezzanine Debtors. The Mezzanine Debtors, in turn, were
each the sole owners of the Operating Debtors, which owned
and operated the respective hotels.

    The 2007 acquisition of the hotels was financed by two
loans: first, a $209 million loan to the Operating Debtors
secured by liens on the two hotels (the “mortgage loan”); and,
second, a $21.5 million loan to the Mezzanine Debtors
secured by liens on the ownership interests in the Operating
Debtors (the “mezzanine loan”).
             IN RE TRANSWEST RESORT PROPERTIES                            5

    The Mezzanine Debtors and the Operating Debtors
defaulted on the mezzanine and mortgage loans, respectively.
In 2010, all five Debtors filed for Chapter 11 bankruptcy in
the United States Bankruptcy Court for the District of
Arizona. The bankruptcy cases for the five entities were
jointly administered.

    JPMCC 2007-C1 Grasslawn Lodging, LLC (“Lender”),
which had acquired the mortgage loan before the Debtors
filed for bankruptcy, filed a proof of claim in the bankruptcy
proceeding for $299 million.1 PIM Ashford Subsidiary I
LLC, which had acquired the mezzanine loan in 2008, filed
two proofs of claim totaling $39 million.2 Debtors and
Lender stipulated that the value of the two hotels was $92
million.

                    B. Plan of Reorganization

   Debtors filed a joint plan of reorganization. The plan
proposed to cancel the Mezzanine Debtors’ equity interest in
the Operating Debtors and to dissolve the Mezzanine
Debtors. Southwest Value Partners Fund XV, LP (“SWVP”)
would invest no less than $30 million and would become the
new sole owner of the Operating Debtors.



  1
     The amount of the claim consisted of the principal amount of the
mortgage loan ($209 million) plus interest, fees, and premiums. The
bankruptcy court then disallowed the premiums and reduced the amount
to approximately $247 million.
  2
    The amount of the claims consisted of the principal amount of the
mezzanine loan ($21.5 million) plus interest, late fees, and $10 million the
Mezzanine Debtors were required to pay back because they failed to make
certain promised improvements.
6           IN RE TRANSWEST RESORT PROPERTIES

    Pursuant to 11 U.S.C. § 1111(b)(2), Lender elected to
have its entire allowed claim, $247 million, treated as a
secured claim.3 The plan proposed to reinstate the loan, but
to restructure the repayment requirements to comprise
monthly interest-only payments and then a balloon payment
of the remaining loan amount after 21 years.

    The proposed restructured loan terms also included a due-
on-sale clause. Pursuant to the clause, any sale or refinancing
of the hotels would make the entire remainder of the $247
million loan due immediately. The clause contained an
exception, however: between years five and fifteen of the
loan, the hotels could be sold or refinanced subject to the
restructured loan (meaning the new buyer would take on the
loan obligations), without the full amount of the loan coming
due on sale, as long as certain conditions were met.4

    PIM Ashford’s treatment under the reorganization
depended on whether it voted for the plan. If it voted against
the plan, it would not receive any distributions. If it voted for
the plan, PIM Ashford would be entitled to a small
percentage of surplus cash flow in the future. The plan
extinguished the mezzanine loan’s collateral (the Mezzanine
Debtors’ equity interest in the Operating Debtors).




    3
    If Lender had not made the § 1111(b) election, then its claim would
have been bifurcated into (1) a secured claim equal to the value of the
collateral ($92 million) and (2) an unsecured claim for the remainder. See
11 U.S.C. § 506(a)(1).
  4
    The original loan agreement between Operating Debtors and Lender
also contained restrictions on the ability to sell the properties.
             IN RE TRANSWEST RESORT PROPERTIES                            7

    There were ten classes of claims under the plan.5 The
mortgage loan and the mezzanine loan were each in a class by
themselves. After the plan was proposed, Lender acquired
the mezzanine loan from PIM Ashford. Lender then voted
both its positions (its original claim and the claim it obtained
from PIM Ashford) against the plan.

    The plan was confirmed despite the votes of Lender’s two
dissenting classes because the plan satisfied the “cram down”
requirements of § 1129(b).6 Pursuant to the plan, the
restructured mortgage loan entitled the Lender to deferred
cash payments (1) totaling at least the amount of the allowed
claim ($247 million, or the “total loan amount”), and
(2) having a net present value equal to the value of the


  5
    In bankruptcy reorganizations, claims against the debtor are grouped
into classes according to their rights vis-à-vis the debtor. See 11 U.S.C.
§ 1122; 7 Collier on Bankruptcy ¶ 1122.01 (16th ed. 2012) (“Section 1122
. . . provides a plan proponent with an important tool in aid of
confirmation of a plan—namely, the ability to classify substantially
similar claims in the same class for purposes of voting and treatment.”).
A class accepts the plan when at least two-thirds in amount and more than
one-half in number of the claims in the class vote in favor. 11 U.S.C.
§ 1126(c). Generally, for a plan to be confirmed, every class must either
vote in favor of the plan or receive full payment. See id. § 1129(a)(8); but
see id. § 1129(b) (setting forth an exception to this rule, for confirmation
of nonconsensual cram down plans).
  6
    The Bankruptcy Code allows a plan proponent to confirm—or “cram
down”—a plan over the dissent of a class as long as certain requirements
for nonconsensual confirmation are met. See 11 U.S.C. § 1129(b);
RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065,
2069 (2012) (“Section 1129(b) creates an exception to that general rule,
permitting confirmation of nonconsensual plans—commonly known as
‘cramdown’ plans—if the plan does not discriminate unfairly, and is fair
and equitable, with respect to each class of claims or interests that is
impaired under, and has not accepted, the plan.”).
8            IN RE TRANSWEST RESORT PROPERTIES

collateral ($92 million). 11 U.S.C. § 1129(b)(2)(A)(i)(II).
Lender also retained a lien on the hotels for the total loan
amount. Id. § 1129(b)(2)(A)(i)(I).

    As part of the consummation of the plan, the Operating
Debtors were renamed SWVP La Paloma, LLC, and SWVP
Hilton Head Property, LLC (collectively “Reorganized
Debtors”) and continued to be wholly owned by SWVP
through an intermediary entity. The Reorganized Debtors
became the borrowers under the restructured mortgage loan.

          C. Lender’s Two Objections to the Plan

    Lender objected to two aspects of the plan. First, Lender
contended that the ten-year exception to the due-on-sale
clause should be removed because it negated its § 1111(b)
election. According to Lender, the option to keep the entire
loan amount as a secured claim, codified in § 1111(b), was
intended by Congress to protect secured creditors against the
undervaluation of their collateral. If the collateral for a loan
were undervalued, Lender argued, the due-on-sale clause
would protect the lender’s interests by, for example,
preventing the debtor from immediately selling the collateral
subject to the restructured loan and capturing the true value
of the collateral.7 Here, Lender specifically asserted that the


   7
     Lender cites to the following treatise passage to support its argument
that the sale of the hotels subject to the restructured loan would undermine
its § 1111(b) election:

         Assume a debtor with a first mortgage debt of
         $10,000,000. At the time of the bankruptcy petition the
         court determines that the value of the mortgage real
         estate is $7,500,000 . . . . Assume . . . that our creditor
         makes the [§ 1111(b)] election and so is left after
            IN RE TRANSWEST RESORT PROPERTIES                         9

exception to the due-on-sale clause between years five and
fifteen would allow Reorganized Debtors to unfairly negate
at least part of the benefit of Lender’s § 1111(b) election.

    Second, Lender complained that the bankruptcy court
misapplied one of the plan-confirmation requirements.
Section 1129(a)(10) requires that, “[i]f a class of claims is
impaired under the plan, at least one class of claims that is
impaired under the plan [must have] accepted the plan” for it
to be confirmed. 11 U.S.C. § 1129(a)(10). Lender pointed
out that in cases involving multiple debtors, courts have split
on whether § 1129(a)(10)’s requirement applies per plan or
per debtor. Compare, e.g., In re Tribune Co., 464 B.R. 126,
180–84 (Bankr. D. Del 2011) (per debtor), with JPMorgan


         confirmation with a $10,000,000 mortgage. Just as he
         predicted, real estate values reverse themselves and the
         debtor makes an agreement to sell the property for
         $12,000,000 to a third party. When the creditor appears
         at the closing to receive its $10,000,000, the debtor
         says: “Not so fast. I have sold the property subject to
         the mortgage. You will continue to get your payments
         because my purchaser has assumed the mortgage and I
         remain liable on it, but the only cash available is the
         $2,000,000 above the $10,000,000 and that goes to
         me.” To make section 1111(b)(2) even remotely fair,
         this sort of activity should be prohibited. Surely the
         policy behind section 1111(b)(2) demands that the court
         infer a “due on sale” clause in any such mortgage
         whether one exists or not.

David G. Epstein et al., Bankruptcy § 10-27, at 776, 778 (1993). In this
case, sale of the hotels subject to a due-on-sale clause would entitle
Lender to immediate payment of the remainder of the total loan amount.
If the sale occurred during the exception to the due-on-sale clause,
however, Lender would continue to receive only a stream of payments
with a net present value lower than the total loan amount.
10           IN RE TRANSWEST RESORT PROPERTIES

Chase Bank, N.A. v. Charter Commc’ns Operating, LLC (In
re Charter Commc’ns), 419 B.R. 221, 264–66 (Bankr.
S.D.N.Y 2009) (per plan). Lender argued for the per-debtor
interpretation of § 1129(a)(10). Because the Mezzanine
Debtors here did not have any impaired class of creditors
voting for the plan, Lender argued that, under this
interpretation, the plan violated § 1129(a)(10).

   The bankruptcy court overruled Lender’s two objections
and confirmed the plan.

              D. Post-confirmation Proceedings

    Four days after the bankruptcy court confirmed the plan,
Lender filed a notice of appeal.8 On the same day, Lender
filed a motion in the bankruptcy court requesting that the
consummation of the plan be stayed pending appeal. Lender
argued that failure to grant the stay could result in the appeal
being rendered moot. Debtors and SWVP each filed
objections to the stay request, arguing that Lender had not
shown how substantial consummation of the plan would moot
Lender’s appeal. The bankruptcy court denied Lender’s
motion for a stay and—having apparently accepted Debtors’
and SWVP’s arguments—ruled that Lender had not shown
the likelihood of irreparable harm required for a stay because
the possibility of mootness was “speculative, at best.” Lender

 8
   Appeals from bankruptcy courts in this circuit may be heard in the first
instance by either a district court or the Ninth Circuit’s bankruptcy
appellate panel (“BAP”). See 28 U.S.C. § 158(a)–(b). Lender’s appeal
was initially referred to the BAP, but Debtors and SWVP exercised their
right to object to proceeding before the BAP, so the appeal was heard by
the district court. See id. § 158(c)(1). A party seeking review of a
decision from the district court or the BAP may appeal to this court, id.
§ 158(d), as Lender did here.
             IN RE TRANSWEST RESORT PROPERTIES                           11

then filed an identical stay motion in the district court, and
Debtors and SWVP again opposed it. Like the bankruptcy
court, the district court declined to issue a stay.

    When the district court then considered the appeal—
which advanced Lender’s two objections to the plan—it held
that the appeal was equitably moot. Although the district
court acknowledged that Lender had been diligent in seeking
a stay, it stated that the plan had been consummated, third
parties had relied on the confirmation of the plan, and the
relief sought would be inequitable.

     Lender filed this timely appeal from that decision.

                                    II.

    Equitable mootness is a prudential doctrine by which a
court elects not to reach the merits of a bankruptcy appeal.
Rev Op Grp. v. ML Manager LLC (In re Mortgs. Ltd.)
(“Mortgages I”), 771 F.3d 1211, 1215 n.2 (9th Cir. 2014).
“An appeal is equitably moot if the case presents transactions
that are so complex or difficult to unwind that debtors,
creditors, and third parties are entitled to rely on the final
bankruptcy court order.” Id. at 1215 (alteration omitted).
Unlike Article III mootness, which causes federal courts to
lack jurisdiction and so to have an inability to provide relief,
equitable mootness is a judge-created doctrine that reflects an
unwillingness to provide relief. Id.9




 9
    The doctrine of equitable mootness is not without its critics. See, e.g.,
In re Cont’l Airlines, 91 F.3d 553, 567–73 (3d Cir. 1996) (in banc) (Alito,
J., dissenting) (questioning the legal basis for equitable mootness).
12        IN RE TRANSWEST RESORT PROPERTIES

   We have set out four considerations to help determine
whether an appeal is equitably moot:

       We will look first at whether a stay was
       sought, for absent that a party has not fully
       pursued its rights. If a stay was sought and
       not gained, we then will look to whether
       substantial consummation of the plan has
       occurred. Next, we will look to the effect a
       remedy may have on third parties not before
       the court. Finally, we will look at whether the
       bankruptcy court can fashion effective and
       equitable relief without completely knocking
       the props out from under the plan and thereby
       creating an uncontrollable situation for the
       bankruptcy court.

Motor Vehicle Cas. Co. v. Thorpe Insulation Co. (In re
Thorpe Insulation Co.), 677 F.3d 869, 881 (9th Cir. 2012).
Because each of Lender’s objections would require a separate
form of relief, the equitable mootness analysis must be
applied separately to each objection. See Rev Op Grp. v. ML
Manager LLC (In re Mortgs. Ltd.) (“Mortgages II”), 771 F.3d
623, 628 (9th Cir. 2014).

   In evaluating a dismissal on equitable mootness grounds,
we review factual findings for clear error and legal
conclusions de novo. See Mortgages I, 771 F.3d at 1214.

                             A.

   Courts must be cautious in applying equitable mootness
when a party has been diligent about seeking a stay.
Mortgages II, 771 F.3d at 628. “To say that a party’s claims,
          IN RE TRANSWEST RESORT PROPERTIES                13

although diligently pursued, are equitably moot because of
the passage of time, before the party had a chance to present
views on appeal, would alter the doctrine to be one of
‘inequitable mootness.’ . . . [I]t would be inequitable to
dismiss their appeal on equitable mootness grounds merely
because the reorganization has proceeded.” In re Thorpe,
677 F.3d at 881.

    Mortgages I and Mortgages II together highlight the
importance of diligence in the equitable mootness analysis.
In Mortgages I, the appellant had failed to seek a stay while
pursuing an appeal. 771 F.3d at 1214. That the appellant had
sat on its rights weighed heavily in favor of holding the
appeal equitably moot. Id. at 1217. In Mortgages II, by
contrast, the appellant had sought a stay pending the appeal.
771 F.3d at 627. We held that the appeal was not equitably
moot and, in doing so, specifically emphasized the request for
a stay as a factor differentiating it from Mortgages I. See
Mortgages II, 771 F.3d at 629 (“Unlike in [Mortgages I],
[appellant] diligently pursued its rights by seeking a stay of
the Declaratory Judgment Order, even though it was unable
to obtain the stay.”).

    Here, Lender was diligent about seeking appellate review
of its two objections to the plan. Four days after the
bankruptcy court confirmed the plan, Lender filed a notice of
appeal and asked the bankruptcy court to stay the
consummation of the plan. When the bankruptcy court
denied that motion, Lender sought a stay from the district
court. That Lender was diligent here cuts strongly in favor of
appellate review of Lender’s claims. See Mortgages II,
771 F.3d at 628 (“[W]e are cautious about not giving a party
who is diligent . . . an opportunity to present its appeal.”).
14        IN RE TRANSWEST RESORT PROPERTIES

                               B.

     The next consideration in the test for equitable mootness
is “whether substantial consummation of the plan has
occurred.” In re Thorpe, 677 F.3d at 882; see also Mortgages
II, 771 F.3d at 628–29. The term “substantial consummation”
is defined in the Bankruptcy Code 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).

    As Lender does not dispute, the record indicates that the
plan has been substantially consummated. SWVP assumed
control over the Debtors. SWVP then reorganized the
Debtors by, among other things, extinguishing Mezzanine
Debtors’ equity interests in Operating Debtors. Finally,
SWVP funded accounts necessary to make disbursements
under the plan and assumed contracts in order to run the
hotels.

    Reorganized Debtors argue that substantial consummation
creates a presumption that the appeal is moot. To support this
           IN RE TRANSWEST RESORT PROPERTIES                  15

proposition, they cite to a series of out-of-circuit cases. See
Appellees’ Br. 32 (citing, e.g., Aetna Cas. & Sur. Co. v. LTV
Steel Co. (In re Chateaugay Corp.), 94 F.3d 772, 776 (2d Cir.
1996)). Our circuit’s articulation of the equitable mootness
test, however, has never included such a presumption. See
Mortgages II, 771 F.3d at 629 (“Substantial consummation of
a bankruptcy plan often brings with it a comprehensive
change in circumstances that renders appellate review of the
merits of the plan impractical. But this is not always the
case. . . . We must still consider whether, despite substantial
consummation, we can fashion effective relief. To do so, we
analyze the final two factors from Thorpe.”) (citations
omitted); see also In re Thorpe, 677 F.3d at 882 n.7.
Although substantial consummation is a factor weighing in
favor of finding the appeal moot, the law in this circuit
requires that we still look at the third and fourth prongs of the
equitable mootness test.

                               C.

    The third consideration in the test for equitable mootness
is whether the relief sought would bear unduly on innocent
third parties. In re Thorpe, 677 F.3d at 882; Mortgages II,
771 F.3d at 629. To evaluate this, we must ask “whether it is
possible to [alter the plan] in a way that does not affect third
party interests to such an extent that the change is
inequitable.” In re Thorpe, 677 F.3d at 882. Third parties’
reliance on the consummation of the plan is not enough to
find this prong satisfied. Rather, for this factor to weigh in
favor of holding a party’s appeal to be equitably moot, the
specific relief sought must bear unduly on innocent third
parties. See id.

    We analyze each of Lender’s objections in turn.
16        IN RE TRANSWEST RESORT PROPERTIES

1. The Exception to the Due-on-Sale Clause

    Lender argued that the plan’s exception to the due-on-sale
clause negates its § 1111(b) election. If Lender prevailed on
the merits of this argument, Lender’s proposed relief would
be the elimination of the exception to the due-on-sale clause.
Without the exception, the due-on-sale clause would prevent
Reorganized Debtors from selling or refinancing the hotels
without paying Lender the remainder of the total loan
amount.

    The relief requested by Lender affects only the division
between Lender and Reorganized Debtors of any appreciation
in value of the hotels (or from any inaccurately low valuation
of the hotels during the bankruptcy proceeding). No party
other than Lender and Reorganized Debtors (and their owner
SWVP) would be affected by this division.

     Reorganized Debtors argue that SWVP, as the owner of
Reorganized Debtors, is the type of innocent third party that
the equitable mootness doctrine is meant to protect. In light
of SWVP’s participation at every stage of these proceedings,
we hold that SWVP is not an innocent third party. SWVP
became involved in the reorganization as a new investor and
as the proposed owner of the reorganized entity before the
confirmation of the plan. Although Debtors put forward the
initial version of the plan, SWVP participated in the hearings
held by the bankruptcy court regarding confirmation of the
plan, and the bankruptcy court acknowledged that it
considered SWVP’s pleadings in reaching its decision to
confirm the plan. In fact, SWVP negotiated with Lender over
the final form of the confirmation order (in other words, the
            IN RE TRANSWEST RESORT PROPERTIES                       17

final version of the plan), including the portions that gave rise
to Lender’s objections.10

    Following confirmation of the plan, SWVP participated
in further proceedings in the bankruptcy and district courts.
SWVP filed a notice of appearance as “Appellee” in the
earlier stage of this appeal in the district court. When Lender
sought a stay pending appeal, SWVP then filed objections in
both the bankruptcy and district courts, arguing, among other
things, that Lender’s objections to the plan were meritless.

    In Thorpe, we noted that in evaluating whether any
remedy would unduly affect innocent third parties, “[a]n
important consideration is whether all the parties affected by
the appeal are before the court.” In re Thorpe, 677 F.3d at
882. Reorganized Debtors are a party to this appeal, and
SWVP called itself an appellee—and participated as such—in
the first stage of this appeal in the district court. Counsel for
SWVP has not appeared in the proceedings before this court,
but regardless of whether that means SWVP is not “before the
court” in the sense anticipated by Thorpe, the involvement
SWVP had at every other step in the process means it is not
an innocent third party. Indeed, when a sophisticated investor
such as SWVP helps craft a reorganization plan that
“press[es] the limits” of the bankruptcy laws, appellate
consequences are a foreseeable result. Bank of N.Y. Trust Co.



  10
    The dissent ignores the role that SWVP had in negotiating the final
confirmation order. SWVP and Lender negotiated numerous aspects of
the plan documents. Ultimately, they were not able to agree on two
issues—the subjects of the two objections to the plan that Lender then
challenged on appeal. SWVP chose to go forward with the confirmation
process despite its awareness of Lender’s objections.
18          IN RE TRANSWEST RESORT PROPERTIES

v. Official Unsecured Creditors’ Comm. (In re Pac. Lumber
Co.), 584 F.3d 229, 244 (5th Cir. 2009).11

2. Section 1129(a)(10)’s Accepting-Class Requirement

    Lender suggests that there would be two possible
remedies if it prevailed on appeal on its argument that
§ 1129(a)(10)’s requirement should be applied to each
Debtor. First, Lender argues that it could be compensated for
the plan’s having extinguished the collateral of its mezzanine
loan. Second, Lender argues that the liens on the ownership
interest in the now-Reorganized Debtors could be reinstated.

    Reorganized Debtors have not shown how either of these
proposed forms of relief would affect innocent third parties.
Instead, Reorganized Debtors’ arguments focus on the effect
that allowing the appeal to go forward would have on SWVP.

 11
    The dissent warns that, by saying that SWVP is not an innocent third
party, we risk reducing the amount investors will be willing to pay for
reorganized entities. Yet, if we allow SWVP to stick to a plan that may
violate the Bankruptcy Code and prevent Lender from arguing its
objections on appeal, we risk decreasing potential lenders’ incentives to
make loans in the first place. The Fifth Circuit in Pacific Lumber aptly
warned that “[a]pplying equitable mootness too broadly to disfavor
appeals challenging the treatment of secured debt carries a price. It may
promote the confirmation of reorganization plans, but it also destabilizes
the credit market for financially troubled companies.” 584 F.3d at 244
n.19.

    Moreover, investors involved in the reorganization process have
substantial control over the risk that a plan will be revised due to an
appeal. Here, for example, SWVP could have continued negotiating a
resolution of Lender’s objections before the parties agreed to the final
confirmation order, or SWVP could have declined to participate in the
plan given that Lender’s objections remained outstanding. See supra note
10.
           IN RE TRANSWEST RESORT PROPERTIES                   19

But the two forms of relief sought—distribution of money
from Reorganized Debtors to Lender or reinstatement of
Lender’s liens—would alter only the relationship between
Reorganized Debtors and Lender. See, e.g., Clear Channel
Outdoor, Inc. v. Knupfer (In re PW, LLC), 391 B.R. 25, 34
(B.A.P. 9th Cir. 2008) (finding that reinstatement of a lien
would not affect third parties). Even if SWVP would be
affected indirectly through the impact on Reorganized
Debtors, SWVP’s involvement in the reorganization process
means that it is not the type of innocent third party that the
third prong of the equitable mootness test is designed to
protect.

                               D.

    The fourth, and most important, consideration in the
equitable mootness test is whether the bankruptcy court could
fashion equitable relief without completely undoing the plan.
See Mortgages II, 771 F.3d at 629; In re Thorpe, 677 F.3d at
883. Even if the relief would be only partial, “[w]here
equitable relief, though incomplete, is available, the appeal is
not moot.” In re Thorpe, 677 F.3d at 883.

1. The Exception to the Due-on-Sale Clause

    Lender seeks elimination of the exception to the due-on-
sale clause. Lender’s argument in support is that allowing a
sale of the hotels subject to the restructured loan frustrates the
intended purpose of the § 1111(b) election. We need not and
should not consider the merits of that argument given that our
present task is only to determine whether equitable mootness
prevents the district court from considering the argument at
all. It is sufficient for now to understand that, if Lender
succeeded on the merits of this argument, eliminating the
20           IN RE TRANSWEST RESORT PROPERTIES

exception to the due-on-sale clause would give Lender
complete relief.

    Even if Lender were successful on the merits, however,
the potential options for relief would not necessarily be
limited to eliminating the full exception. Because even
incomplete relief can be enough to counsel against mooting
the appeal, see Mortgages II, 771 F.3d at 629, we have to ask
whether there are any forms of even partial relief that could
be provided without unravelling the plan. We can think of
two examples of potential partial relief. First, the bankruptcy
court could reduce the length of the window during which the
due-on-sale clause does not apply. Second, the court could
decide that, if a sale occurred during the window, Lender
would be entitled to some percentage of the difference
between the remainder of the total loan amount and the loan’s
present value.

    Reorganized Debtors insist that any relief would be
inequitable. Their position implies that were the court to
narrow the window of the exception by one day—or, in the
case of a sale during the period of the exception, to award
Lender one percent of the difference between the remainder
of the total loan amount and the loan’s present value—that
would undermine the entire plan. We see no reason why this
would be true, and Reorganized Debtors have offered none.12

 12
     The dissent delves into the merits of Lender’s objection, arguing that
Lender is asking for more than it had pre-bankruptcy, that providing the
precise form of relief Lender has requested would be inequitable, and that
the requested relief might even cause SWVP to divest from the hotels.
Perhaps these are arguments that could persuade the bankruptcy court on
remand from an appellate victory by Lender on the merits. But our task
at this juncture is merely to determine whether, if Lender succeeded on the
merits, an equitable remedy could be fashioned.
            IN RE TRANSWEST RESORT PROPERTIES                         21

    Additionally, Reorganized Debtors’ present contention
that altering the exception to the due-on-sale clause would
unravel the economics of the plan is in tension with the
positions SWVP (filing briefs as a self-termed “interested
party,” before the reorganization took place) and the original
Debtors advocated in the bankruptcy and district courts.
SWVP and Debtors both actively opposed the stay sought by
Lender in the bankruptcy and district courts, arguing that
there would be no likelihood of irreparable harm absent a
stay. In doing so, SWVP specifically stated that Lender had
not demonstrated how “substantial consummation of the
Confirmed Plan would, in fact, moot its appeal.” Debtors
argued that there would be no “immediate harm” from the
plan’s exception to the due-on-sale clause because the
exception would not arise until “approximately January
2017,” and that “[i]t [wa]s entirely speculative whether such
a sale would ever occur.” These prior positions by their
predecessors-in-interest severely undermine Reorganized
Debtors’ argument before this court that the exception to the
due-on-sale clause was a fundamental component of the
transaction and that it cannot now be eliminated or altered
without unraveling the plan.



     We also disagree with the dissent’s suggestion that a nominal remedy
will always be available, preventing any case from being equitably moot.
When true third parties have acted in reliance on a plan, there may be
instances in which any plan amendment would unfairly undermine that
reliance. See, e.g., In re Pac. Lumber, 584 F.3d at 251 (“[W]e must hold
[the lender’s] impairment and classification contentions equitably moot.
Because the plan has been substantially consummated, the smaller
unsecured creditors—irrespective of their status vis à vis the reorganized
companies—have received payment for their claims. Third-party
expectations cannot reasonably be undone, and no remedy for [the
lender’s] contentions is practicable other than unwinding the plan.”).
22          IN RE TRANSWEST RESORT PROPERTIES

2. Section 1129(a)(10)’s Accepting-Class Requirement

    Section 1129(a)(10) requires that, in order to confirm a
plan, at least one impaired class of claims must vote in favor
of the plan.        Lender’s second objection was that
§ 1129(a)(10)’s requirement that there be an impaired class
voting for the plan should apply to each individual debtor, not
to the plan as a whole. Because Lender, in its position as the
sole creditor of the Mezzanine Debtors, voted against the
plan, Lender argued that this requirement was not satisfied
here.

    If Lender succeeded on the merits of this argument, it
would have shown that, under the Bankruptcy Code, it had
the right to veto the plan at the confirmation stage.13 Even if
we assume that vetoing the entire plan is no longer an
available form of relief, though, we must again ask whether
there is any other remedy that could be crafted to address
Lender’s claim.

    Logically, the value of Lender’s ability to veto was worth
somewhere between nothing and $39 million—the total value
of Lender’s claims against the Mezzanine Debtors. Under
11 U.S.C. § 1126(f), a class of claims that is not impaired
(meaning the plan does not alter its rights) is deemed to


  13
     To the extent that Reorganized Debtors argue that Lender was acting
in bad faith by acquiring the mezzanine loan to improve its leverage in
negotiations about the mortgage loan, that argument was already litigated
before the bankruptcy court. Debtors filed a motion arguing that Lender
had acquired the mezzanine loan in bad faith and that the court should
therefore designate Lender pursuant to 11 U.S.C. § 1126(e). (In this
context, designate means disqualify from voting.) The bankruptcy court
denied Debtors’ motion. Reorganized Debtors could have filed a cross
appeal in the district court to contest that ruling but did not.
          IN RE TRANSWEST RESORT PROPERTIES                23

automatically accept the plan. Accordingly, if Lender’s
mezzanine claim had been paid in full, the mezzanine claim
would have been deemed to have voted for the plan. Making
that payment now (or, at least, that payment plus interest)
would thus seem to eliminate the § 1129(a)(10) objection. A
lesser payment may not eliminate the § 1129(a)(10) objection
altogether, but would at least offer a partial remedy. And we
see no reason why, if the court were to devise a remedy that
required Reorganized Debtors to pay Lender one dollar, for
example, the plan would be undone. See In re Thorpe,
677 F.3d at 883 (holding that equitable remedies “vest great
discretion in a court devising a remedy”).

                         *    *     *

   We conclude that Lender’s appeal is not equitably moot.
Although the plan has been substantially consummated,
Lender was diligent about seeking a stay, and it would be
possible to devise an equitable remedy for each objection that
would not bear unduly on innocent third parties.

                             III.

    For the foregoing reasons, we REVERSE the district
court’s dismissal for equitable mootness and REMAND for
further proceedings.
24          IN RE TRANSWEST RESORT PROPERTIES

M. SMITH, Circuit Judge, dissenting:

     I respectfully dissent.

     The majority wrongly concludes that the interests of
Southwest Value Partners (SWVP), a third-party investor
with no pre-petition interest in this bankruptcy, should not
inform our assessment of whether it would be prudent or
equitable to disturb this reorganization plan at this late stage.
It is only by ignoring these interests that the majority is able
to conclude that any equitable remedies would be available in
this case. In reality, the remedies the Lender proposes are
grossly inequitable to SWVP and would surely jeopardize the
reorganization. More broadly, the majority’s decision
discourages potential investors from relying on the finality of
bankruptcy court confirmation orders, or from investing in
struggling properties until all bankruptcy litigation is
concluded, which, as in this case, can take many years. This
impedes the Bankruptcy Code’s goal of “maximizing debtors’
estates and facilitating successful reorganization,” to the
detriment of both debtors and creditors. In re Continental
Airlines, 91 F.3d 553, 565 (3d Cir. 1996).

    The majority and I agree that this plan has been
substantially consummated, and that this factor weighs in
favor of finding this appeal equitably moot. We disagree,
however, regarding just how much weight the factor should
carry. While I agree that “the fact that a plan is substantially
consummated . . . does not, by itself, render an appeal moot,”
In re Mortgages Ltd., 771 F.3d 623, 629 (9th Cir. 2014)
(internal quotation marks omitted), substantial consummation
should be our “foremost consideration” in assessing equitable
mootness, see In re Continental Airlines, 91 F.3d at 560.
Indeed, as the majority acknowledges, many of our sister
          IN RE TRANSWEST RESORT PROPERTIES                 25

circuits have held that substantial consummation creates a
presumption of equitable mootness. See Aetna Cas. & Sur.
Co. v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772,
776 (2d Cir. 1996); Rochman v. Ne. Utils. Serv. Grp. (In re
Pub. Serv. Co. of N.H.), 963 F.2d 469, 473 n.13 (1st Cir.
1992); In re AOV Indus., Inc., 792 F.2d 1140, 1149 (D.C. Cir.
1986). While we have not recognized such a presumption,
nothing in our precedents suggests that we should not accord
significant weight to substantial consummation in
determining whether an equitable and effective remedy is
available. Cf. In re Mortgages, 771 F.3d at 629 (recognizing
that “[s]ubstantial consummation of a bankruptcy plan often
brings with it a comprehensive change in circumstances that
renders appellate review of the merits of the plan
impractical,” but that courts must still consider whether it is
possible to “fashion effective relief”).

    I strongly disagree with the majority’s conclusion that the
equitable mootness doctrine is not meant to protect the
interests of a third-party investor in SWVP’s position. The
majority concludes that we should not consider how the
proposed remedies will affect SWVP’s interests because
SWVP participated in the bankruptcy proceedings, and, to
some extent, in this appeal. But we have never held that we
may ignore a third-party investor’s interests merely because
the third party participated in the proceedings. The majority
relies in part on the Fifth Circuit’s decision in Bank of New
York Trust Co. v. Official Unsecured Creditors’ Committee
(In re Pacific Lumber Co.), 584 F.3d 229 (5th Cir. 2009).
However, that case involved a reorganization plan that had
been crafted by a creditor and a competitor of the debtor. Id.
at 238. It was therefore at least arguably fair to discount the
creditor and competitor’s interests in deciding whether the
appeal was equitably moot, since they were responsible for
26        IN RE TRANSWEST RESORT PROPERTIES

the deficiencies in the plan. Id. There is no indication that
SWVP had any connection to this case until the Debtors
approached it to fund a reorganization plan the debtors had
already crafted. In fact, a different third-party investor
initially agreed to fund the plan. It was only after the first
investor unexpectedly declined to pursue the transaction that
SWVP agreed to make an investment on terms that were
substantially similar to those the Debtors had previously
negotiated with the other third-party investor. Once SWVP
agreed to fund the plan, it was only natural that it would be
involved in the bankruptcy proceedings, since its investment
was the very reason the proposed reorganization was feasible.
See In re GWI PCS 1 Inc., 230 F.3d 788, 801–02 (5th Cir.
2000) (rejecting argument that “insiders” “lack[ed] good faith
reliance on the reorganization plan,” and noting that “it would
be natural for many, if not a majority, of the transactions set
forth in a reorganization plan to involve the participants of
the chapter 11 proceedings”).

    The majority suggests that SWVP was not entitled to rely
on the finality of the confirmation order because it could
reasonably foresee that the order would be appealed. This
argument unduly focuses on the reasonableness of SWVP’s
reliance, rather than on the compelling reasons why investors
should be affirmatively encouraged to rely on the finality of
confirmation orders. As the Third Circuit has observed,

       [o]ur inquiry should not be about the
       “reasonableness” of the Investors’ reliance or
       the probability of either party succeeding on
       appeal. Rather, we should ask whether
       we want to encourage or discourage
       reliance by investors and others on the
       finality of bankruptcy confirmation orders.
          IN RE TRANSWEST RESORT PROPERTIES                 27

       The strong public policy in favor of
       maximizing debtors’ estates and facilitating
       successful reorganization, reflected in the
       Code itself, clearly weighs in favor of
       encouraging such reliance. Indeed, the
       importance of allowing approved
       reorganizations to go forward in reliance on
       bankruptcy court confirmation orders may be
       the central animating force behind the
       equitable mootness doctrine.

In re Continental Airlines, 91 F.3d at 565. This case
illustrates perfectly why encouraging reliance on bankruptcy
confirmation orders is critical to facilitating complex
reorganizations. Once a third party like SWVP invests to
improve the debtors’ capital, to the benefit of creditors and
debtors alike, it is much more difficult for it to walk away if
the terms of its bargain are altered on appeal. The rule the
majority endorses ignores the realities of the marketplace, and
creates strong incentives for investors to delay funding
improvements until after the appeal is completed, which may
take years. It has already taken approximately three years
since SWVP funded the plan in this case. Had SWVP waited
to fund improvements, the Debtors’ hotels would still be
depreciating in value, and perhaps might even have been
abandoned for want of funding. This would have negatively
impacted the Lender by decreasing the value of its collateral
and impeding, or terminating, the ability of the Debtors to
generate cash flow and service their debt. Worse, the
majority approach discourages third parties from agreeing to
make these kinds of post-confirmation investments in the first
instance. This is likely to detrimentally impact both creditors
and debtors by decreasing the value of debtors’ estates ex
ante and making it more difficult to facilitate workable
28        IN RE TRANSWEST RESORT PROPERTIES

reorganizations.   As the Seventh Circuit has eloquently
observed:

       Every incremental risk of revision on appeal
       puts a cloud over the plan of reorganization,
       and derivatively over the assets of the
       reorganized firm. People pay less for assets
       that may be snatched back or otherwise
       affected by subsequent events. Self-protection
       through the adjustment of prices may affect
       the viability of the reorganization, and in any
       event may distort the allocation of assets away
       from the persons who can make the most
       valuable uses of them and toward persons
       who are less sensitive to the costs of ex post
       changes of plans. By protecting the interests
       of persons who acquire assets in reliance on a
       plan of reorganization, a court increases the
       price the estate can realize ex ante, and thus
       produces benefits for creditors in the
       aggregate.

In re UNR Indus., Inc., 20 F.3d 766, 770 (7th Cir. 1994), cert.
denied, 513 U.S. 999 (1994). Once this plan was confirmed,
and once the Lender’s request for a stay was denied, the very
success of the reorganization depended on SWVP promptly
funding improvements in reliance on the confirmation order.
Reliance should be encouraged here, not discouraged.

    There is another reason we absolutely must consider the
impact the proposed remedies will have on SWVP. To
determine whether this appeal is equitably moot, we must
assess whether the remedies will “completely knock[] the
props out from under the plan and thereby creat[e] an
          IN RE TRANSWEST RESORT PROPERTIES                 29

uncontrollable situation for the bankruptcy court.” Motor
Vehicle Cas. Co. v. Thorpe Insulation Co. (In re Thorpe
Insulation Co.), 677 F.3d 869, 881 (9th Cir. 2012). Because
the success of the entire reorganization plan hinges on
SWVP’s continued investment, answering this question
requires us to predict whether SWVP will still consider this
transaction attractive if the requested remedies are imposed.

     There is ample reason to believe that incorporating the
proposed remedies into the reorganization plan could cause
SWVP to stop funding improvements and divest. The Lender
suggests that “the bankruptcy court could compensate Lender
for the value of its extinguished collateral by amending the
Plan to provide a distribution to Lender equal to the
approximately $30 million that SWVP paid for the new
ownership interests in the reorganized Debtors.” For all
practical purposes this would amount to a distribution of
money from SWVP to the Lender, since SWVP owns the
Reorganized Debtors and was the source of their capital.
There is no indication in the record that SWVP is obligated
to invest in the Reorganized Debtors and continue to fund
improvements if the plan is unwound. Therefore, if the
confirmation order is vacated, the only thing keeping SWVP
at the table will be its substantial sunk costs. The bankruptcy
court could try to force the Reorganized Debtors to pay the
Lender and hope that SWVP’s sunk costs deter it from
divesting. But it is unlikely that SWVP will look favorably
upon a plan that requires its wholly owned subsidiaries to pay
an extra $30 million, the amount of SWVP’s investment
under the original plan, to the Lender.

    Nor is it likely that SWVP will view the other two
proposed remedies any more favorably. The Lender suggests
that “the bankruptcy court could replace Lender’s collateral
30         IN RE TRANSWEST RESORT PROPERTIES

by providing Lender with a lien on the ownership interests in
the reorganized Debtors.” The Lender does not explain why
SWVP would wish to continue to invest in renovating the
properties of the Reorganized Debtors if its ownership
interest was suddenly subject to a lien. The other remedy the
Lender proposes, full due-on-sale protections, would also
fundamentally alter the economics of the transaction.
SWVP’s right to sell the hotels after five years was
undoubtedly an essential feature of SWVP’s bargain.

    Even if the proposed remedies could be imposed on
SWVP without jeopardizing its commitment to funding the
improvements, it would not be equitable to do so. As the
majority recognizes, we must address each of the Lender’s
claims separately. The Lender’s first claim is that the ten-
year exception to the due-on-sale clause should be removed
because it negated the Lender’s § 1111(b) election. However,
it does not appear that the original loan even contained a due-
on-sale provision. Instead, the original loan permitted
transfers of the properties on substantially similar terms as the
ten-year exception to the due-on-sale clause contained in the
reorganization plan. The Lender is therefore seeking greater
protections than it had under the original loan. It would not
be equitable to upset the plan at this juncture to provide
protections that the Lender has no reasonable basis to expect.

    The Lender’s second claim is that the Mezzanine Debtors
did not have any impaired class of creditors voting for the
plan. The Lender acquired the mezzanine loan after the plan
was proposed, knowing that the plan, if confirmed, would
extinguish the mezzanine loan’s collateral. That collateral
was worthless, because it consisted of the Mezzanine
Debtors’ equity interest in the deeply insolvent Operating
Debtors. Therefore, as the majority acknowledges, the
           IN RE TRANSWEST RESORT PROPERTIES                 31

mezzanine loan only had value because, according to the
Lender’s view of the law, it allowed the Lender to veto the
plan.

    The majority concludes that this issue is not equitably
moot because the bankruptcy court can compensate the
Lender for the loss of its veto right by, for instance,
“requir[ing] [the] Reorganized Debtors to pay [the] Lender
one dollar.” The availability of this relief does not justify
upsetting the plan at this stage. It will generally be possible
to award a nominal sum without wholly upsetting the
economics of the plan. However, if this nominal remedy
qualified as the “effective and equitable relief” required by
our equitable mootness cases, see In re Thorpe, 677 F.3d at
881, a remedy would always be available and no case would
ever be equitably moot. The proper inquiry here is not only
whether some nominal sum could be awarded, but whether it
is prudent and fair at this juncture to vacate the confirmation
order and jeopardize this reorganization.

    I conclude that it is neither prudent nor fair. The majority
would have us upset this successful reorganization for the
sole purpose of vindicating the Lender’s purported right to
thwart a viable plan of reorganization, a right it strategically
acquired on the eve of confirmation. This strongly conflicts
with the Bankruptcy Code’s purpose of promoting successful
reorganization. In re Continental Airlines, 91 F.3d at 565.
The public interest in promoting reliance on the finality of
bankruptcy court confirmation orders, as well as basic
fairness to SWVP, now greatly outweigh the Lender’s interest
in receiving compensation for its strategically acquired veto
right.

   I respectfully dissent.
