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Delaware Supreme Court dismisses an appeal and vacates a Court of Chancery judgment based on a bankruptcy court’s confirmation of a plan of reorganization relating to the appellee-corporation

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主页 观点 Delaware Supreme Court dismisses an appeal and vacates a Court of Chancery judgment based on a bankruptcy court’s confirmation of a plan of reorganization relating to the appellee-corporation
In SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. No. 78, 2021 (Del. Aug. 9, 2021), the Delaware Supreme Court recently dismissed a books-and-records appeal as moot and vacated a judgment issued by the Court of Chancery after appellee Tonopah Solar Energy, LLC (Tonopah) emerged from a Chapter 11 bankruptcy proceeding as a new limited liability company operating under a new limited liability company agreement.  This opinion by the Delaware high court is notable because the activity that mooted the appeal occurred during the time the appeal was pending rather than before the appellate process began. 

Background

Appellant SolarReserve CSP Holdings, LLC (SolarReserve), which held an indirect interest in Tonopah, filed an action seeking the inspection of Tonopah’s books and records in the Delaware Court of Chancery. At the trial-court level, SolarReserve claimed Tonopah breached a limited liability company agreement (LLC Agreement) by refusing SolarReserve’s demand for inspection.

In a post-trial opinion, the Court of Chancery held, among other rulings, that SolarReserve was not the real party in interest because it had transferred its claims to non-party CMB Infrastructure Investment Group IX, L.P. (CMB), and that CMB had no inspection rights under the LLC Agreement.

Six days after the Court of Chancery issued its post-trial opinion, Tonopah filed a voluntary petition for Chapter 11 bankruptcy. As part of the Chapter 11 plan, Tonopah was reorganized into a new limited liability company, operating under a new LLC Agreement that did not provide for any inspection rights. After the automatic stay was lifted, SolarReserve filed an appeal with the Delaware Supreme Court.

Analysis

This appeal began with SolarReserve filing an opening brief, in which SolarReserve argued the merits of the appeal. In its answering brief, Tonopah argued that the appeal should be dismissed as moot, because the bankruptcy proceeding resulted in a new LLC Agreement that eliminated the inspection provision at issue in the litigation. Rather than filing a reply, SolarReserve moved the court to vacate the Court of Chancery’s post-trial opinion. SolarReserve argued that vacatur of the Court of Chancery’s opinion was necessary because the appeal was moot due to circumstances beyond SolarReserve’s control – i.e., Tonopah’s bankruptcy. Tonopah claimed that vacatur was improper and SolarReserve was simply making a tactical maneuver to support litigation pending in Nevada.

Regarding the mootness issue, both parties and the court agreed that the issue on appeal (i.e., the entitlement to inspect books and records of Tonopah) was moot as a result of the reorganization and new LLC Agreement.

Regarding the issue of vacatur, the court observed that vacatur is necessary to prevent an unappealable judgment from obtaining precedential or preclusive res judicata effect. The court concluded that vacatur should be granted because SolarReserve was prevented from obtaining appellate review due to Tonopah’s bankruptcy, which was beyond SolarReserve’s control, and it would be contrary to the interests of justice for an unappealable judgment to have precedential or preclusive effect on SolarReserve – especially given the pending litigation in Nevada. The court also noted that this action became moot during the pendency of the appeal, rather than before as is the case in most circumstances. Nevertheless, the court determined that vacatur was appropriate according to these facts.