Bankruptcy – Appeals – Mootness – Hospital Asset Sale – Constitutional – Dual Office Holding

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Alexander v. Barnwell County Hospital (Lawyers Weekly No. 002-148-13, 16 pp.) (J. Michelle Childs, J.) 1:12-cv-02265; D.S.C.

Holding: Even though, by the time the bankruptcy court allowed the defendant-hospital to consummate its bankruptcy plan, the S.C. Supreme Court had already ruled that it was unconstitutional for the county council to install itself as the hospital’s board, this appeal – seeking an unwinding of that plan – is moot.

Appeal dismissed.

Background

The Barnwell County Council dismissed the defendant-hospital’s board and installed itself as the new hospital board. The council/board filed a bankruptcy petition for the hospital and found a purchaser for the hospital’s assets.

Plaintiff filed suit in state court, alleging that the county council violated the S.C. Constitution’s ban on dual office-holding when its members assumed positions as members of the hospital’s board. Plaintiff also intervened in this bankruptcy action to seek a stay. The bankruptcy court confirmed the hospital’s plan and found that the dual office-holding prohibition had not been violated. On June 6, 2012, plaintiff appealed to this court

On May 29, 2013, the S.C. Supreme Court found that simultaneous service on the county council and the hospital’s board constituted improper dual office-holding in violation of the S.C. Constitution.

Two weeks later, the bankruptcy court denied plaintiff’s motion for a stay, and the hospital’s plan was implemented. The hospital moved to dismiss plaintiff’s appeal as moot.

Mootness

This appeal is constitutionally moot because plaintiff seeks a remedy that would require undoing the plan in its entirety. The plan has been implemented such that a greater part of the hospital’s assets are in the possession of a non-party to this action and any remaining assets have either already been distributed or are about to be distributed to other non-parties. Moreover, most of the proceeds from the transfer of the hospital’s assets have been distributed to its creditors, who are also non-parties to this action. It would be impossible to award plaintiff effective relief under these circumstances.

The appeal is equitably moot as well. First, although plaintiff sought and was denied a stay in the bankruptcy court, he failed to seek a stay from this court pending the appeal. While a party is not required to seek a stay pending appeal, a party who fails to do so incurs the risk that during the pendency of the appeal, the appeal may be rendered moot. Because this court was not asked to issue a stay pending the appeal, the hospital was authorized by the bankruptcy court’s order to carry out the plan before the appeal could be heard.

Second, the plan has been substantially consummated. Third, plaintiff seeks to undo the plan completely as opposed to a less extreme measure, such as undoing one component of the plan. Fourth, the remedy plaintiff seeks would unduly harm innocent third parties who are not before the court.

Appeal dismissed.