By: Donald L Swanson
Doctrines of constitutional mootness and equitable mootness can prevent an appellate court from hearing an appeal.
But what the meaning of those two doctrines might be is often a mystery.
An opinion from the U.S. Third Circuit Court of Appeals addresses both mootness doctrines and clarifies what they mean: The Reed Action Judgment Creditors v. Alecto Healthcare Services, LLC, Case No. 25-1853 (3rd Cir., decided July 28, 2026). This opinion affirms:
- a Delaware Bankruptcy Court ruling[fn. 1] that confirms Debtor’s Subchapter V Plan; and
- a U.S. District Court of Delaware ruling[fn. 2] that affirms the Bankruptcy Court.
What follows is a summary of the Third Circuit’s Reed v. Alecto opinion on the constitutional mootness and equitable mootness doctrines.
Debtor’s Subchapter V Plan
Debtor files a Subchapter V bankruptcy Petition and a proposed Plan of reorganization.
Debtor’s Bankruptcy Court appoints Investigator to investigate, bring, and settle claims against Debtor’s affiliates and insiders and to address disputes between Debtor and certain creditors.
After completing the investigation, Investigator approves a Settlement of claims against insiders. The Settlement provides for release of avoidance claims against insiders in exchange for their $25,000 payment.
The Settlement is included in Debtor’s Subchapter V Plan and would be approved by confirmation of the Plan.
Creditors object to confirmation of the Plan because the Settlement would release Debtor’s avoidance claims against insiders.
The Bankruptcy Court overrules Creditors’ objection and confirms Debtor’s Plan.
Mootness Issues
Creditors appeal—first to the U.S. District Court for Delaware and then to the Third Circuit Court of Appeals.
At the Third Circuit, Debtor moves to dismiss Creditors’ appeal as both constitutionally moot and equitably moot.
In response, the Third Circuit declares that such dismissal motion “lacks merit.”
Here’s why.
–Constitutional Mootness
An appeal is moot in the constitutional sense only if events have taken place during the pendency of the appeal that make it impossible for the court to grant any effectual relief whatsoever.
Debtor argues that Creditors’ appeal is constitutionally moot because:
- if the Settlement is rejected, a lawsuit asserting avoidance claims will need to be filed; but
- the statute of limitations for filing such a lawsuit has expired.
This argument fails because the statute of limitations on a fraudulent transfer claim under California law may be tolled while the defendants are in a position to conceal their wrongdoing and prevent the corporation from seeking redress.
Because Creditors maintain that Debtor intentionally hid evidence on insolvency, it is possible that the statute of limitations on the avoidance claims may be tolled.
Accordingly, the Third Circuit “cannot say” that it is “impossible for the court to grant any effectual relief whatsoever.” And so the appeal is not constitutionally moot.
–Equitable Mootness
Equitable mootness is only available in complex bankruptcies where the reorganization involves intricate transactions.
Subchapter V is less complicated by design: it removes many of the complex requirements that made bankruptcy unapproachable for small businesses.
And Debtor’s confirmed Plan involves “a single integrated transaction.”
Therefore, because this bankruptcy lacks the complexity to which equitable mootness has been applied, the appeal here will not be deemed equitably moot.
Conclusion
Very interesting.
[Note: this is the second in a series of three articles on the Reed v. Alecto opinion from the Third Circuit Court of Appeals.]
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Footnote 1. The Delaware Bankruptcy Court ruling is, In re Alecto Healthcare Services LLC, Case No. 23-10787 (decided December 4, 2023; Doc. 243).
Footnote 2. The Delaware U.S. District Court ruling is The Reed Action Judgment Creditors v. Alecto Healthcare Services, LLC (In re Alecto Healthcare Services, LLC), Civ. No. 24-494 (Lead) & Civ. No. 23-1442 (Consolidated); decided March 31, 2025.
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