     Case: 18-11476      Document: 00515176445         Page: 1    Date Filed: 10/28/2019




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                         United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
                                      No. 18-11476                       October 28, 2019
                                                                           Lyle W. Cayce
In the Matter of: THRU, INCORPORATED                                            Clerk


               Debtor

DROPBOX, INCORPORATED,

              Appellant

v.

THRU, INCORPORATED; THRU, L.L.C.; LEE HARRISON; ELIZA JANE
MCCOY; RODERIC HOLLIDAY-SMITH,

              Appellees




                  Appeals from the United States District Court
                       for the Northern District of Texas
                             USDC No. 3:17-CV-1958
                             USDC No. 3:17-CV-1959


Before DAVIS, GRAVES, and HIGGINSON, Circuit Judges.
PER CURIAM:*
       In this Chapter 11 bankruptcy proceeding filed by the appellee Thru, Inc.
(“Thru”), the appellant Dropbox, Inc. (“Dropbox”) held a $2.3 million judgment


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                      No. 18-11476
from a California federal court and was Thru’s largest creditor. Following
protracted litigation in the bankruptcy court, the bankruptcy court overruled
Dropbox’s objections to Thru’s proposed plan of reorganization (the “Plan”). On
July 10, 2017, the bankruptcy court confirmed the Plan.
      Dropbox appealed to the district court. However, it did not obtain a stay,
and the Plan was consummated. With respect to Dropbox’s claim, the Plan
proposed to pay Dropbox the full amount of its claim ($2.3 million) over a 6.5-
year amortization schedule with interest at the federal judgment rate (1.22%).
      Before the district court, the debtor Thru filed a motion to dismiss
Dropbox’s appeal as equitably moot because of significant post-confirmation
transactions made by Thru as authorized by the Plan. This included
assumption of executory contracts with third parties; obtaining loans relating
to exit from bankruptcy; payment of creditors pursuant to the Plan; and
entering into numerous contracts with third parties relating to conducting its
business.
      The district court granted Thru’s motion to dismiss based on the well-
established doctrine of equitable mootness. The doctrine, unique to bankruptcy
proceedings, “authorizes an appellate court to decline review of an otherwise
viable appeal of a Chapter 11 reorganization plan, but only when the
reorganization has progressed too far for the requested relief practicably to be
granted.” 1 The court considers “(1) whether a stay was obtained, (2) whether
the plan has been ‘substantially consummated,’ and (3) whether the relief
requested would affect either the rights of parties not before the court or the
success of the plan.” 2 We review a district court’s ruling on equitable mootness
de novo. 3


      1 In re Blast Energy Services, Inc., 593 F.3d 418, 424 (5th Cir. 2010).
      2 In re Manges, 29 F.3d 1034, 1039 (5th Cir. 1994).
      3 In re GWI PCS 1 Inc., 230 F.3d 788, 799 (5th Cir. 2000).

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                                       No. 18-11476
       We agree with the district court that Thru demonstrated that the Plan
had progressed too far for the relief requested to practically be granted. 4 In
short, reversal would require third-party creditors to return distributions
already paid, and upset the expectation and reliance interests of third-party
customers, vendors, and partners in good faith who entered into post-
confirmation transactions with Thru.
       The only issue that is appropriate for review is Dropbox’s claim that the
district court erred in finding that interest at the federal judgment rate of
1.22% satisfied the cramdown requirements of Section 1129(b) of the
Bankruptcy Code. Dropbox argued that the bankruptcy court should have
applied the “prime-plus” formula endorsed by a plurality of the Supreme Court
in Till v. SCS Credit Corp. 5 by starting at the prime rate of 4.25% and
adjusting upward; or the market rate approach. Further, Dropbox argued that
the federal judgment rate (1.22%) was insufficient because it was lower than
the rate of inflation (1.7%). We review a bankruptcy court’s cramdown-rate
analysis for clear error. 6




       4   We also agree with the district court’s conclusion that the doctrine of equitable
mootness precludes review of Dropbox’s claim of unfair discrimination. When there is no
remedy for an alleged unfairly discriminatory plan other than to unwind it, it is appropriate
to decline review. See In re Pacific Lumber Co., 584 F.3d 229, 251 (5th Cir. 2009). Dropbox
suggests that the district court could “have addressed unfair discrimination without
unwinding the Plan by invalidating the insider liens and recharacterizing the Prepetition
Loan and the Exit Facility as the equity contributions they really are.” First, neither the
bankruptcy court nor the district court could invalidate the insider liens unless presented
with an adversary proceeding. Fed. R. Bankr. P. 7001(2). Second, the district court did not
have the authority to recharacterize the Prepetition Loan and the Exit Facility as equity
rather than debt because Dropbox does not point to its objection to this characterization in
the bankruptcy court. 11 U.S.C. § 502(a) (“A claim of interest, proof of which is filed … is
deemed allowed, unless a party in interest … objects.”). Unwinding the Plan is the only way
to remedy its allegedly unfairly discriminatory aspects. The district court correctly applied
the doctrine of equitable mootness.
        5 541 U.S. 465 (2004).
        6 In re Texas Grand Prairie Hotel Realty, L.L.C., 710 F.3d 324, 330-331 (5th Cir. 2013).

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                                          No. 18-11476
      Under Section 1129(b), a bankruptcy court can confirm a reorganization
plan over a creditor’s objection “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.” 7 To be fair and equitable, a
plan must provide unsecured creditors with “property of a value, as of the
effective date of the plan, equal to the allowed amount of such claim.” 8
      Although, as the bankruptcy court observed, the federal judgment rate
was lower than the rate of inflation at the time of confirmation, it provided
unsecured creditors the amount they would receive outside of bankruptcy. We
find no clear error in the bankruptcy court’s choice of interest at the federal
judgment rate.
      For these reasons and those assigned in the district court’s careful
October 19, 2018 memorandum opinion and order, the judgment of the district
court is AFFIRMED.




      7   11 U.S.C. § 1129(b).
      8   11 U.S.C. § 1129(b)(2)(B)(i).
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