In Matter of Texxon Petrochemicals, L.L.C., 67 F.4th 259 (5th Cir. 2023), the Fifth Circuit held that even if an appeal is equitably moot, the appellate court nonetheless has appellate jurisdiction to consider the merits of the appeal, without reaching the issue of equitable mootness.
There, the debtor, Texxon Petrochemicals, L.L.C. (“Texxon”), operated a gas station and convenience store on property it rented from Getty Realty Corporation (“GRC”). Two years prior to the bankruptcy filing, Texxon’s owner and GRC engaged in an email exchange in which GRC expressed an interest in a sale of the property. In response to GRC’s initial email, the owner of Texxon responded “Sure,” and expressed an interest in pursuing the transaction (the “2018 Email Exchange”). No further discussions or actions regarding the sale took place. After Texxon filed for bankruptcy two years later, it filed a motion to assume an executory contract with Getty Leasing, Inc. (“GLI”), alleging that the 2018 Email Exchange created a contract to purchase the property. GLI objected to the motion, arguing no contract existed.
The bankruptcy court and district court agreed with GLI, finding that the only evidence of the purported contract – the brief 2018 Email Exchange – was insufficient to demonstrate that the debtor was a party to a valid contract under Texas law.
While the appeal was pending before the district court, Texxon’s bankruptcy case was dismissed. GLI, however, did not raise the impact of the dismissal (i.e., equitable mootness) during the district court appeal. Upon Texxon’s appeal to the Fifth Circuit, however, GLI moved to dismiss the appeal for lack of jurisdiction based on equitable mootness. GLI argued that the dismissal of Texxon’s bankruptcy case was akin to substantial consummation of a plan in that it forecloses judicial relief. Texxon countered by arguing that the validity of the contract was ancillary to the bankruptcy and still a live controversy, making equitable mootness inapplicable.
The Fifth Circuit, relying on caselaw that allowed for a determination on the merits without considering the equitable mootness issue, chose to avoid ruling on the equitable mootness issue. In so doing, the Fifth Circuit, relying on a dissenting opinion from now-Justice Alito in a Third Circuit case, did not find the equitable mootness issue to be jurisdictional. See In re Continental Airlines, 91 F.3d 553, 568-72, 29 Bankr. Ct. Dec. (CRR) 629, 36 Collier Bankr. Cas. 2d (MB) 785 (3d Cir. 1996) (en banc) (Alito, J., dissenting) (reviewing the origin of equitable mootness and concluding that it does not present a jurisdictional question requiring consideration before the merits). As such, the Fifth Circuit explained that the equitable mootness issue need not be considered prior to a determination on the underlying merits of the appeal. The Fifth Circuit’s supported its position in prior circuit court precedent (from the Fifth and Seventh Circuits) where the merits were considered prior to a determination on equitable mootness. See Lifemark Hosp. of La., Inc. v. Lijeberg Enters., Inc., No. 98-30610, 1999 WL 195247 at *2 (5th Cir. 1999) (“Because we reach the merits of this case, we need not consider [the appellee's] motion to dismiss on the basis of equitable mootness, and this motion is therefore denied.”); Duff v. Central Sleep Diagnostics, LLC, 801 F.3d 833, 841 (7th Cir. 2015) (“Because [the appellant's] appeal is patently frivolous on the merits, however, we need not come to a firm conclusion about equitable mootness.”).
Because the Fifth Circuit found the merits of the case straightforward, it affirmed the decisions of the bankruptcy and district courts, finding that the 2018 Email Exchange did not create a valid contract under Texas law.
