Equitable Mootness: The Importance Of Seeking A Stay (In re 307 Assets)

When appealing a plan confirmation order, a crucial first step is this: asking the bankruptcy court for a stay of the confirmation order pending appeal (under Fed.R.Bankr.P. 8007).

That’s the message of Sei Insieme LLC v. 307 Assets LLC (In re 307 Assets LLC), Case No. 24-2881-bk in the U.S. Second Circuit Court of Appeals (decided September 29, 2025), affirming In re 307 Assets LLC, 665 B.R. 214 (S.D.N.Y. 2024).

What follows is a summary of those two opinions.

Facts

Sei Insieme LLC owns Property located at 307-309 Sixth Avenue, New York, NY.

Sei sells that Property to 307 Assets LLC for $17,000,000, taking back a $5,000,000 second-position mortgage.

Later, the first-position lienholder begins a mortgage foreclosure action on the Property, resulting in the entry of a judgment for foreclosure and sale of the Property.

The Property was to be sold on December 14, 2022.

On December 13, 2022, Sei files a Chapter 11 bankruptcy to “protect its interest in the Property.” Sei had used its second mortgage on the Property as collateral for another loan and had assigned its mortgage to a Third Party—the Third Party had been served in the foreclosure action, but Sei had not.

In its bankruptcy, Sei moves for a temporary restraining order to stay the foreclosure sale scheduled for that afternoon—and the Bankruptcy Court promptly issues a TRO for fourteen days.

On January 9, 2023, 307 Assets LLC files its own Chapter 11 bankruptcy, along with a disclosure statement and plan:

the sole scheduled asset is the Property, valued at $14.5 million;
scheduled liabilities total 2.6 million; and
the disclosure statement and plan set procedures for selling the Property and organizes claims into classes for paying claims from sale proceeds.

Sei objects to the disclosure statement. But the Bankruptcy Court (i) approves the disclosure statement and sale procedures for the Property, and (ii) sets the sale date for June 19, 2023.

Then, Sei obtains a stay of the scheduled sale of the Property and seeks discovery under Rule 2004. Following its Rule 2004 examinations, Sei objects to confirmation of the Plan.

The Plan is confirmed anyway, and sale of the Property (free and clear of liens and subject to § 363(m)) is to proceed.

Sei appeals the confirmation order to the S.D.N.Y. but does not seek or obtain a stay pending appeal. 307 Assets LLC files a motion to dismiss the appeal as equitably moot—which motion is granted. So, 307 Assets LLC appeals, further, to the Second Circuit Court of Appeals, which also affirms.

S.D.N.Y. Analysis

–General Legal Standards

Generally in bankruptcy appeals, the district court reviews the bankruptcy court’s factual findings for clear error and its conclusions of law de novo. However, in an equitable mootness dismissal:

the district court is not reviewing the bankruptcy court at all, but exercising its own discretion in the first instance; but
in doing so, the district court may rely on the bankruptcy court’s factual findings, unless clearly erroneous, and if necessary receive additional evidence.

A bankruptcy appeal should be dismissed as equitably moot when, during the pendency of an appeal, events occur such that even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable.

Equitable mootness is not limited to appeals of orders confirming plans of reorganization, but rather has been applied in a range of contexts, including appeals involving all manner of bankruptcy court orders.

Dismissal is appropriate when the appellant has made no effort to obtain a stay and has permitted such a comprehensive change of circumstances to occur as to render it inequitable for the appellate court to reach the merits of the appeal.

In the Second Circuit, a bankruptcy appeal is presumed equitably moot when the debtor’s reorganization plan has been substantially consummated, and “substantial consummation” consists (under § 1101(2)) of:

transfer of all or substantially all of the property proposed by the plan to be transferred;
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
commencement of distribution under the plan.

–Five Factors

On appeal from a plan confirmation order, the appellant must demonstrate that its requested relief is warranted, by establishing each of the following five factors:

the court can still order some effective relief;
such relief will not affect the re-emergence of the debtor as a revitalized corporate entity;
such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court;
the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and
the appellant pursued with diligence all available remedies to obtain a stay of execution of the objectionable order, if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from.

–Arguments on Appeal

307 Assets LLC argues that Sei’s appeal is equitably moot because:

307 Assets LLC and Purchaser closed on the Property sale, with distributions made to Court-approved legal fees, real estate broker fees, U.S. Trustee fees, etc.;
the Plan was consummated, and the Property is now encumbered with a new mortgage lien;
Sei sought no stay pending appeal; and
Sei served no affected party, other than 307 Assets LLC, with notice of the appeal to the District Court.

Sei does not dispute that substantial consummation of the Plan has occurred. It argues, instead, that the appeal is not equitably moot, under § 363(m), because (i) sale of the Property was “conducted in bad faith,” and (ii) the five factors identified above demonstrate no mootness.

–Rejecting Sei’s Arguments

Sei has failed to meet its burden to establish each of the five factors identified above.

First, and most important, Sei failed to pursue with diligence a stay of the plan confirmation and sale approval order. The Second Circuit has declared that a “chief consideration” among the five factors “is whether the appellant sought a stay of confirmation.”

Sei argues that its inaction on seeking a stay was justified based on its perception that “the Bankruptcy Court was not going to stay the confirmation of the Plan which approved the Sale” in light of Sei’s prior, unsuccessful attempts to oppose the Amended Plan and Property sale. But:

the Second Circuit (i) has repeatedly rejected this line of argument, and (ii) insists that a party seek a stay even if it may seem highly unlikely that the bankruptcy court will issue one; and
the great weight placed on this factor is in recognition of the fact that, (i) in bankruptcy, achieving finality is essential to fashioning effective remedies, and (ii) acts of reliance on unstayed bankruptcy confirmation orders should not be routinely vulnerable to nullification.

Second, Sei cannot be awarded monetary relief, and the sale cannot be reversed:

Sei fails to explain the basis upon which it would be entitled to monetary relief in this appellate posture;
a reversal of the sale, even if that were possible, would be inequitable—the Property is now encumbered with a new mortgage lien, and the buyer cannot unwind its transactions following the close of sale;
an unraveling of the confirmed plan would prejudice the multiple parties that were paid under the terms of the confirmed Plan; and
Sei cannot show that all affected entities were notified of the District Court appeal and given the opportunity to be heard.

Accordingly, Sei has failed to meet its burden of establishing each of the five factors identified above and is, therefore, unable to overcome the presumption that this appeal is equitably moot.

The Court therefore grants 307 Assets LLC’s motion to dismiss the appeal on equitable mootness grounds.

Second Circuit Analysis

The Second Circuit Affirms. Here’s why.

A presumption of equitable mootness is applied when the debtor’s reorganization plan has been substantially consummated.

To overcome this presumption, Sei must establish the five factors identified by the District Court (see above):

we require satisfaction of each of the five factors to overcome a mootness presumption; but
we place significant reliance on the fifth factor—i.e., diligence in seeking a stay of the Bankruptcy Court’s plan confirmation and sale order.

Sei insists that all five factors are satisfied.

–Fifth Factor

With respect to the fifth factor, for example, Sei claims to have diligently pursued a stay, pointing to its (i) prior motion to reconsider the Bankruptcy Court’s order approving procedures for selling the property, and (ii) prior motion to stay the sale of the property and to extend the time to object to the debtor’s plan of reorganization.

But those prior motions preceded the plan confirmation hearing by several months. Sei has NOT established the fifth factor:

Sei never filed a motion or took any other action in the Bankruptcy Court to stay the plan confirmation and sale order.

Sei also argues that moving to stay the confirmation order would have been futile—but we have long insisted that a party seek a stay even if it may seem highly unlikely that the bankruptcy court will issue one.

Failure to establish the fifth factor (seeking a stay pending appeal from the bankruptcy court) is in and of itself sufficient to moot the bankruptcy appeal.

–Other Factors

But Sei also failed to establish:

the third factor, since relief for Sei would unravel the reorganization plan to the prejudice of the City of New York, the United States Trustee, and the real estate broker who oversaw the property sale;
the fourth factor, given the absence of evidence that all parties affected by the sale were notified of Sei’s appeal to the District Court; and
its allegations of bad faith (whether such allegations are relevant in this context or not)—the Bankruptcy Court properly concluded that 307 Assets LLC acted in good faith.

In summary, the District Court did not abuse its discretion in dismissing the appeal as equitably moot.

Conclusion

Good to know.

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