In Re: L&L Wings, Inc.

Background

L&L Wings operated retail stores and historically used the WINGS trade name, trademark, and service mark. In 1998, it granted Marco Destin, Inc. (MDI) a license involving the WINGS mark. After their relationship deteriorated, L&L Wings sued MDI in the Southern District of New York. That case ended in a 2011 settlement order under which MDI agreed to pay $3,500,000, stop using the WINGS mark and trade dress, and waive and release its claims against L&L Wings.

In separate litigation brought by Beach Mart, Inc., a court determined that L&L Wings had fraudulently obtained two WINGS trademark registrations and that Shepard Morrow owned the mark. The judgment against L&L Wings totaled $15,749,313.41. L&L Wings later filed for Chapter 11 bankruptcy protection. MDI filed a proof of claim asserting a contingent and unliquidated claim connected to potential relief from the 2011 settlement order, including repayment of the settlement amount.

MDI, Panama Surf & Sport, Inc., and E&T, Inc. then asked the bankruptcy court for relief from the automatic stay under 11 U.S.C. § 362(d). The automatic stay is a bankruptcy rule that generally prevents creditors and others from starting or continuing actions against the debtor. The appellants said they wanted to sue L&L Wings’s principals for fraud on the court and fraud against MDI, while naming L&L Wings only as a nominal defendant. Bankruptcy Judge David S. Jones denied the request after finding that the relevant factors weighed against lifting the stay.

District Court Appeal

The appellants appealed the denial. They did not seek a stay of the bankruptcy proceedings while the appeal was pending and did not object to L&L Wings’s proposed Third Amended Plan of Reorganization or the order confirming that plan. Judge Jones entered the Confirmation Order on March 1, 2022. The district court stated that the Confirmation Order had become final and that, according to L&L Wings’s undisputed representation, the plan had been substantially carried out.

L&L Wings moved to dismiss the appeal on several grounds, including that the appeal conflicted with the plan’s confirmation injunction, the Chapter 11 discharge and related injunction, and the doctrine of equitable mootness. The district court did not need to resolve all of those grounds. It held that the appeal was constitutionally moot.

Reasoning

A dispute is constitutionally moot when the requested relief can no longer be granted or is no longer needed. In that situation, Article III of the Constitution prevents a federal court from deciding the case, and the court lacks subject-matter jurisdiction.

The court explained that the automatic stay continued only until the earliest of specified events, including the granting or denial of a discharge. Under the Bankruptcy Code, confirmation of a reorganization plan discharges qualifying debts that arose before confirmation. The court concluded that confirmation of L&L Wings’s plan extinguished the automatic stay and replaced it with a discharge injunction. That injunction generally bars actions to collect, recover, or offset discharged debts as personal liabilities of the debtor.

Because no automatic stay remained for the court to modify, the court could not grant the limited stay relief requested by the appellants. The appellants also had not appealed or otherwise challenged the Confirmation Order, so the court said it did not need to consider relief from the replacement discharge injunction.

Disposition

The court granted L&L Wings’s motion to dismiss the appeal. It held that the appeal was moot, concluded that it lacked subject-matter jurisdiction, directed entry of judgment, and ordered the case closed. The opinion’s conclusion refers to docket number 20-cv-1082, while the caption identifies the appeal as No. 22-CV-1082-LTS.