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CU System
Court reverses Centrix bankruptcy decision
DENVER (12/10/09)--A U.S. Court of Appeals in Denver has reversed a decision by a lower court and remanded it back to that court for reconsideration of the Chapter 11 bankruptcy plan for Centennial, Colo.-based Centrix, a company that financed subprime auto loans for credit unions (Leagle.com Dec. 9). The bankruptcy plan was approved by the U.S. Bankruptcy Court in May 2008. The plan proposed to pay creditors with proceeds from any successful litigation and from the 2007 sale of its assets for $30 million to Kendrick CF Acquisition Inc., now known as Peak 5. Unsecured creditors' recovery depended on Centrix pursuing claims against its CEO, Robert E. Sutton, who helped establish Kendrick (News Now Jan. 22, 2008). Sutton and two companies--6762 S. Potomac LLC and Centrix Consolidated--appealed the rulings and final decisions entered by the bankruptcy court after it ruled their objections as "equitably moot," using a five-prong test. The appellants contended the district court erred in adopting the doctrine of equitable mootness, and, should the doctrine be deemed appropriate to the case, it erred in applying the relevant criteria. The appellant court formally adopted the equitable mootness doctrine in 2009 in another case but instead of a five-part test, it set forth a six-part test for determining whether an appeal is equitably moot. The sixth question in the test is whether appellants' challenge to the plan is legally meritorious or equitably compelling "based upon a quick look at the merits." The lower court had applied as one of the factors whether the relief requested would affect the success of the plan; however, the appellate court's test requires a court to analyze the likely impact of an appellant's challenge to the plan upon a successful reorganization of the debt. The appeals court committed the equitably moot matter to the lower district court's discretion. "This is not a case where we can affirm the district court's discretionary dismissal as a matter of law, on the basis 'that it would have been an abuse of discretion for the district court not to dismiss [the appeal],'" said the higher court. "Therefore, we conclude that a remand is appropriate in this case, to allow the district court to weigh and apply those factors in the first instance," the appeals court said in its ruling Tuesday.


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