Free Opening Brief in Support - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWAR
Civil Action No. 06-00520-GMS, 06-00521-GMS

In re: NELLSON NURACEUTICAL, INC., et al.
Debtors.
Bankrptcy Case No. 06- 10072 (CSS)

UNITED STATES TRUSTEE AND OFFICIAL COMMITTEE OF UNSECURD CREDITORS
Appellants,
v.

NELLSON NUTRACEUTICAL, INC., et al.
Appellees.

APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE (Christopher S. Sontchi, Judge)

BRIEF IN SUPPORT OF APPELLEES' MOTION TO DISMISS APPEAL ON MOOTNESS GROUNS
PACHUSKI STANG ZIEHL YOUNG JONES & WEINTRAUB LLP Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753) 919 North Market Street, 1 ih Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)
Telephone: (302) 652-4100 Facsimile: (302) 652-4400

Counsel for the Appellees
DATED:
June 26, 2007

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TABLE OF CONTENTS
Pal!e

INTRODUCTION ...........................................................................................................................1

STATEMENT OF THE CASE........................................................................................................1
STATEMENT OF FACTS......................................................................................................... .....2

A. Background.......................................................................................... .......2
B. The Debtors' Implementation Of

The Order ..............................................3

ARGUMNT...................................................................................................................................4

A. The Doctrine Of Constitutional Mootness. .................................................4 B. The Doctrine Of Equitable Mootness .........................................................6
1. Appellants Never Sought Or Obtained A Stay. ..........................................9
2. The Order Has Been Fully Consummated. ...............................................10

3. A Reversal of the Order Would Prejudice Third Paries...........................ll
4. The Relief Appellants Request Would Undermne The Success Of

The Equitable Relief Granted By The Order. ...........................................12
5. The Public Policy Of Fostering Reliance On Final Bankruptcy
Orders Strongly Supports Dismissal Of

This AppeaL. ..............................12

CONCLUSION........................................................................................................................... ...14

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TABLE OF AUTHORITIES
Cases Cases
Estate of Richards v. Onouli- Kona Land Co.,

Pal!e(s)

846 F.2d 1170, 1172 (9th Cir. 1988) ................................................................................... 7

In re Box Brothers Holding Co.,
194 B.R. 32 (D. DeL. 1996) ..................................................................................... 7, 10, 13

In re Chateaugay Corp.,
988 F.2d 322 (2nd Cir. 1993) ............................................................................................... 9

In re Continental Airlines,

91 F.3d 553 (3d Cir. 1996)................................................................ 1,4, 7, 8, 9, 10, 11, 13
In re Grand Union Co. v. Saul, Ewing, Remick & Saul, 200 B.R. 101 (D. DeL. 1996) ............................................................................................. 10

In re Highway Truck Drivers & Helpers Local Union #107,
888 F.2d 293 (3rd Cir. 1989) ............................................................................................... 9

In re Public Service Company of New Hampshire,
963 F.2d 469, 471-472 (1 st Cir. 1992) .............. ................ ........... ................................. ...... 7

In re Quality Spice Corp., 107 B.R. 843 (D.N.J. 1989) ...................................................................................... 6, 8, 10

In re Roberts Farms, Inc.,
652 F.2d 793 (9th Cir. 1981) ............................................................................................... 9

In re Zenith Electronics Corp., 250 B.R. 207, 215 (D. DeL. 2000).................... ......... ..... ........ ........................... .................. 9

Mac Panel Company v. Virginia Panel Corporation,
283 F.3d 622,625 (4th Cir. 2002) ....................................................................................... 7

Matter of Andreuccetti, 975 F.2d 413, 418 (7th Cir. 1992) ....... ........................ ................ ................................... ..... 8

Mountain Laurel Resources Co. v. Mine Management, Inc., 2000 WL 341913 (4th Cir. April 3, 2000) .... ...... .............. ......... .................................... ...... 8
Nordhoff Investments Inc. v. Zenith Electronic Corp., 258 F.3d 180, 185 (3rd Cir. 2001) .......................................................................................8

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Rochman v. Northeast Utils. Servo Group, 963 F.2d 469 (1 st Cir. 1991), cert denied, 506 u.s. 908 (1992) ....................................... 11

Shawnee Hills, Inc., 2002 WL 31681538 at *2 (S.D. W.Va. November 19, 2002) ............................................ 8

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INTRODUCTION
The appeal of the United States Trustee (the "UST") and the Official Commttee
of Unsecured Creditors (the "Commttee," and together with the UST, the "Appellants") should
be dismissed under the well-established doctrines of constitutional and equitable mootness. This

appeal involves the Bankrptcy Cour's order approving a management incentive plan and
explicitly authorizing payments thereunder. No stay pending appeal was obtained (or even
requested) and the management incentive plan has been fully consummated. It has now been

nearly one year since all payments under the management incentive plan were made to
employees. None of

these employees are parties to this appeal.

Under established Third Circuit precedent, an appeal from a bankruptcy order is
moot if, in light of events occurrng after the order, granting the requested relief would be

impossible or inequitable. In re Continental Airlines, 91 F.3d 553, 558-59 (3d Cir. 1996) (en
banc). This appeal is moot from a constitutional perspective because it is impossible for this

Court to order employees, who are not paries to this appeal, to refund monies that they received
nearly one year ago under the management incentive plan approved by the Bankruptcy Court. In

addition, it would be wholly unfair under the doctrine of equitable mootness to require
employees, most of whom probably do not even know about the pendency of this appeal, to
return incentive payments that they worked so hard to ear and which they received nearly one

year ago. In short, and as explained in more detail below, this appeal presents a clear case for
applying the doctrines of constitutional and equitable mootness and dismissing the appeaL.

STATEMENT OF THE CASE

This appeal is asserted by the UST and the Commttee from an order (the
"Order") of the United States Bankrptcy Court for the District of Delaware entered on July 18,

2006, approving a management incentive plan (the "MI") and approving payments thereunder

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up to an aggregate amount of $1.395 millon. (A-2J, The UST's notice of appeal was filed on
July 27, 2006, and the Committee's notice of appeal was filed on July 28, 2006. (A-2, A-3).

The notices of appeal were docketed on August 23,2006.

STATEMENT OF FACTS
A. Background.
On January 28, 2006 (the "Petition Date"), Nellson Nutraceutical, Inc., Nellson

Holdings, Inc., Nellson Intermediate Holdings, Inc., Nellson Northern Operating, Inc., Nellson

Nutraceutical Eastern Division, Inc., Nellson Nutraceutical Powder Division, Inc., and Vitex
Foods, Inc. (collectively, the "Debtors") fied voluntary petitions for relief under chapter 11 of

the Bankrptcy Code. The Debtors continue in possession of their properties and are operating
and managing their businesses as debtors and debtors in possession pursuant to sections 1107(a)

and 1108 of the Bankruptcy Code.

On April 28, 2006, the Debtors fied their Motion for Entry of an Order
Authorizing and Approving Payments Under Management Incentive Plan (the "MIP Motion").

(A-I) By the MIP Motion, the Debtors sought authority to implement, and make payments
under, a performance-based management incentive plan (i.e., the MI). Payments under the MI
were tied to the Debtors achieving certain objective earnings targets. Appellants objected to the
MIP on various grounds.

An evidentiary hearng was held on July 10, 2006 and continued to July 13,2006,
at which the Debtors presented two fact witnesses and one expert to substantiate the Debtors'

business judgment in proposing the MIP and the reasonableness of the amounts to be paid under

1 For the convenience of the Court and the parties, relevant documents are included in an Appendix fied contemporaneously herewith, and are labeled in numeric order (A-I, A-2, etc.).

2
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the MIP. The Commttee presented one expert witness. The UST offered no witnesses. At the
conclusion of the hearng on July 13, 2006, the Bankrptcy Court granted the MIP Motion. The
Order was subsequently entered on the docket on July 18, 2006. The Order expressly provides
that "the Debtors are authorized, but not directed, to make payments to the Employees, under the

Management Incentive Plan, up to an aggregate amount of $1.395 millon." (A-2)
On July 27, 2006 and July 28, 2006, the UST and the Committee, respectively,

each fied a notice of appeal of the Order with the Bankrptcy Court (collectively, the "Notices
of Appeal"). (A-3, A-4) The Notices of Appeal were docketed to this Court on August 23,

2006.

In the nearly one year since this appeal was filed, literally nothing has been done

by Appellants to further the appeaL. Despite the express language of the Order authorizing the
Debtors to "make payments to the Employees," neither of the Appellants ever moved to stay the
Order pending appeaL.

B. The Debtors' Implementation Of The Order.

The Bankrptcy Court's Order has been fully consummated. Following entry of
the Order, the Debtors promptly implemented the MI for the benefit of the company's

management employees. The MI only covered calendar year 2006.

On July 31, 2006, the Debtors made their first payments to employees under the

MIP for achieving the operational benchmarks set forth therein for the first half of 2006. See
Declaration of James M. Fragnoli, submitted herewith. The aggregate sum of $550,000 was paid

at that time. Id.

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The Debtors did not achieve their performance targets for the second half of 2006.

!d. Accordingly, no additional payments under the MI were made and there are no more
payments that wil be made under the MIP. !d. Hence, by its own terms, the MIP has expired.2

ARGUMNT
A. The Doctrine Of Constitutional Mootness.

The doctrine of constitutional mootness is grounded on the duty of an Article III

court "to decide live controversies, 'not to give opinions upon moot questions or abstract
propositions, or to declare principles or rules of law which cannot affect the matter in issue in the

case before it.'" Offcial Comm. of Unsecured Creditors of LTV Aerospace & Defense Co. Inc.
v. Offcial Comm. of Unsecured Creditors of LTV Steel Co., Inc. (In re Chateaugay Corp.), 988
F.2d 322, 325 (2d Cir. 1993) (quoting Mils v. Green, 156 U.S. 651, 653, 16 S.Ct. 132, 133

(1895)).
As stated by the Third Circuit (citing Supreme Court

jurisprudence), "an appeal is

moot in the constitutional sense only if events have taken place during the pendency of the
appeal that make it 'impossible for the court to grant any effectual relief whatsoever.'" In re
Continental Airlines, 91 F.3d 553, 558 (3d Cir. 1996) (en banc) (quoting Church of Scientology

v. United States, 506 u.s. 9, 12, 113 S.Ct. 447, 499 (1992)). "An appeal is not moot merely

because a court cannot restore the paries to the status quo ante." Id. So long as a court can
fashion "some form of meaningful relief," the appeal is not constitutionally moot. Id.
Specifically, constitutional

limitations on a court's exercise of jurisdiction over an

appeal arse when, during the course of an appeal, the appellate court loses jurisdiction over the

2 The Debtors have since fied a motion to sell substantially all of their operating assets, which is
currently set for hearing before the Bankruptcy Court on July 19,2007.

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res or the parties that are the subject of the appeal, thereby rendering the court powerless to grant
the requested relief. Rochman v. Northeast Uti!. Servs. Group (In re Public Servo Co. of New
Hampshire), 963 F.2d 469,471,476 n. 19 (1st Cir. 1992) (citing cases); see also Credit Allance
Corp. V. Dunning-Ray Ins. Agency, Inc. (In re Blumer), 66 B.R. 109, 113 (B.A.P. 9th Cir. 1986),

aff'd, 826 F.2d 1069 (9th Cir. 1987) ("Effective relief (in an appeal) is impossible if funds have

been disbursed to persons who are not paries to the appeal. . . ."); Evergreen Intl Airlines, Inc.

v. Pan Am Corp. (In re Pan Am Corp.), 1995 WL 366356, at *3-5 (S.D.N.Y. June 20, 1995)
(dismissing appeal as constitutionally moot on the basis that distributions had already been made

to former employees). One court summarzed this fundamental jurisdictional principle as
follows:

To begin with, (the) appeal is moot as a constitutional matter

because the orders (appellant) seeks to stay have already been cared out and all of the funds . . . have already been disbursed. Thus, even were (appellant) to prevail on appeal, it would be impossible to afford him the relief he seeks, namely return of the distributed funds. This is so because the primary transferee . . . is
not a pary to this appeaL.

Carr V. King (In re Carr), 321 B.R. 702, 707 (B.D. Va. 2005).

In Chateaugay Corp., the Second Circuit was confronted with an appeal of an
order authorizing the debtor to pay pension benefits. 988 F.2d at 323. Because no stay had been

obtained, the order on appeal had been fully implemented, pension funds had been disbursed to

the participants in the plan, and the order had expired by its own terms. Id. at 326. The court

presumed that the plan's paricipants had used the benefits they received to meet their living
expenses. Id. The court also recognized that "(t)he recoupment of these funds from them, in

addition to being impracticable, would impose an unfair hardship on faultless beneficiaries who
are not parties to this appeal." Id. (emphasis added). Accordingly, the Second Circuit

concluded that the order on appeal was moot and dismissed the appeaL. Id. at 327; compare U.S.
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Trustee v. Offcial Comm. of Equity Security Holders (In re Zenith Elecs. Corp.), 329 F.3d 338,
340 n.l (3d Cir. 2003) (declining to find constitutional mootness in a case where the paries to an

appeal continued to exist and could be ordered to disgorge monies received under the order on
appeaL. )
This appeal presents a highly analogous set of facts to Chateaugay Corp.

Appellants were clearly on notice, given the express language of the Order, that the Debtors were

authorized to implement the MI and to "make payments to the Employees" thereunder. (A-2)
Yet, Appellants took no action to stay the appeaL. As a result, the Debtors implemented the MIP
and made payments to employees under the MIP, which has since expired by its own terms.

The employees who received payments under the MIP are not parties to this
appeal. They are "faultless beneficiares" who eared every penny paid to them under the MI.
Hence, whatever happens in this appeal, it is inconceivable as a matter of due process that this

Court could order employees to disgorge monies to the estates, paricularly given that the
distributions under the MIP were made nearly one year ago. Accordingly, because there is
absolutely no form of relief that this Court could fashion, this appeal is constitutionally moot and
should be dismissed.
B. The Doctrine Of Equitable Mootness.

Separate and apar from the issue of constitutional mootness, the instant appeal

should also be dismissed under the doctrine of equitable mootness. This doctrine contemplates
that an appeal should be dismissed if granting the requested relief would be inequitable in light
of substantial consummation of the plan or other events. See, e.g., Continental Airlines, 91 F.3d

at 559. The mootness doctrine has been applied to bankrptcy appeals, often in the context of
failure to obtain a stay of the bankrptcy court's order. Matter of Quality Spice Corporation,

107 B.R. 843, 849 (D. N.J. 1989).
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Unlike the distinct concept of constitutional mootness addressed above, equitable

mootness does not require a finding that it would be impossible to grant any relief in order to
dismiss the appeaL. Equitable mootness, rather, is a jurisprudential doctrine which holds that an

appeal should be dismissed as moot when, even though effective relief could conceivably be
fashioned, implementation of that relief would be inequitable. In re Box Bros. Holding Co., 194
B.R. 32, 39 (D. DeL. 1996); see also Continental, 91 F.3d at 558-559. This rule developed in par

from the paricular need for finality in orders in bankrptcy. Estate of Richards v. Onouli-Kona
Land Co., 846 F.2d 1170,1172 (9th Cir. 1988); Public Servo Co. of New Hampshire, 963 at 471-

472 ("(i)n bankruptcy proceedings, the equitable component centers on the important public
policy favoring orderly reorganization and settlement of debtor estates by affording finality to
the judgments of the bankruptcy court.").

Courts in this Circuit and in other circuits, to a varying degree, have established

five non-binding factors to be considered in determning whether it would be "equitable or
prudential" to reach the merits of a bankrptcy appeal:
(1) whether appellant sought or obtained a stay;

(2) whether the reorganization plan or other equitable relief has been

substantiall y consummated;

(3) whether the relief requested would affect the rights of parties not before
the court;
(4) whether the relief requested would affect the success of the plan or other

equitable relief granted; and
(5) the public policy of affording finality to bankrptcy judgments.

Mac Panel Co. v. Virginia Panel Corp., 283 F.3d 622,625 (4th Cir. 2002); see also Continental,

91 F.3d at 539. It is not a requirement that all five factors be met in order to estop an appeal as
equitably moot. See, e.g., Nordhoff Investments, Inc. V. Zenith Elec. Corp., 258 F.3d 180, 185

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(3rd Cir. 2001). In addition to other factors, when applying the mootness rule, a court may
consider whether, within the facts of the case, it would be highly inequitable to reverse the
bankruptcy court's order. Matter of Andreuccetti, 975 F.2d 413,418 (7th Cir. 1992). Of these,
the foremost consideration has been whether the reorganization plan or equitable relief requested

has been substantially consummated. Continental, 91 F.3d at 539.
Although the equitable mootness doctrine has been applied most commonly in the

context of appeals pertaining to plan confirmation orders, courts have held that the principle also

applies to an order of other equitable relief that has been substantially consummated. In re
Shawnee Hils, Inc., 2002 WL 31681538 at *2 (S.D. W.Va. November 19, 2002). As noted by
the Shawnee court, if there is any difference between simple, preliminary orders in a bankrptcy
case, and orders confirming comprehensive reorganization plans, it is that the simple order may

easier to unravel - it does not mean that the doctrine of equitable mootness is inapplicable. Id.
The doctrine has been applied, inter alia, to estop appeals of a settlement regarding the

disposition of spices in the possession of the debtor, Quality Spice, 107 B.R. 843, the settement
of environmental

litigation, Mountain Laurel Resources Co. v. Mine Management, Inc., 2000
3, 2000), and an order approving the honoring of payroll checks of the

WL 341913 (4th Cir. April

debtor, Shawnee Hils. Indeed, in Continental, the Third Circuit characterized equitable
mootness as a "widely recognized and accepted doctrine" when implementation of the relief
requested in an appeal would be inequitable. 91 F.3d at 559.

As discussed below, principles of equity, paricularly as viewed within the context

of the five-factor analysis, decisively favor dismissal of this appeal on equitable mootness
grounds.

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1. Appellants Never Sought Or Obtained A Stay.

The Third Circuit has repeatedly emphasized the critical importance of obtaining
a stay if an appellant hopes to avoid mootness. As the Court explained in In re Highway Truck

Drivers & Helpers Local Union #107,888 F.2d 293 (3rd Cir. 1989):

It is obligatory upon appellant... to pursue with dilgence all
available remedies to obtain a stay of execution of the

objectionable order (even to the extent of applying to the Circuit

Justice for relief. . .), if the failure to do so creates a situation
rendering it inequitable to reverse the orders appealed from.

Id. at 297 (citing In re Roberts Farms, Inc., 652 F.2d 793, 798 (9th Cir. 1981)); see also
Continental, 91 F.3d at 562 ("(t)he pary who appeals without seeking to avail himself of that
protection does so at his own risk.") (citing In re Chateaugay Corp., 988 F.2d 322, 326 (2nd Cir.

1993)). Moreover, this factor should cary even greater significance where the appellant failed to
even move for a stay pending resolution of a matter on appeaL. In re Zenith Elecs. Corp., 250
B.R. 207, 215 (D. DeL. 2000).

Any mootness here is the result of Appellants' own inaction. Appellants never
sought a stay. With no stay, the Debtors properly proceeded to consummate the Order in

reliance on the Bankruptcy Court's decision. The Debtors fully implemented the MIP, and made

all payments required thereunder, in accordance with the Debtors' commitment to their
management employees.

This should come to no surprise to the UST and the Commttee, given the express

language of the Order authorizing the Debtors to "make payments to the Employees(.)" (A-2)

The Debtors and their employees obviously could not be placed in the position of waiting for
months for the appeals process to play out in the absence of stay. Under these circumstances:

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it was incumbent on counsel to "act with dispatch" in seeking a
stay. That notwithstanding, counsel for (appellant), who is

experienced bankrptcy counsel, chose not to come prepared with papers to fie an emergency stay motion.
In re Tempo Tech. Corp., 202 B.R. 363, 374 (D. DeL. 1996). The failure to do so by the UST and

the Commttee in this case weighs heavily against Appellants' right to proceed on this appeaL.

As Judge McKelvie of this Court noted, "(t)he existence or absence of a stay is a

critical factor in determining whether to dismiss an appeal under the doctrine of equitable
mootness." In re Grand Union Co. v. Saul, Ewing, Remick & Saul, 200 B.R. 101, 105 (D. DeL.

1996) (citing Continental, supra, at 561-563, and In re Box Bros. Holding Co., 194 B.R. 32, 39
(D. DeL. 1996)); see also In re Quality Spice Corp., 107 B.R. 843, 855 (D. N.J. 1989) ("it may be

incumbent upon a party appealing a bankrptcy court's ruling to seek a stay lest the appeal in
question be rendered moot by constitutional or related equitable jurisprudential considerations").

Because Appellants "sat on . . . (their) alleged rights" while the Order was being
consummated, they cannot seek to undo the MI now, months after the fact. Tempo, 202 B.R. at

374; see also Continental, 91 F.3d at 562 (failure to obtain stay weighed heavily in favor of
dismissal).
2. The Order Has Been Fully Consummated.

As noted above, the Bankrptcy Court approved the Debtors' MIP Motion on July

18,2006, nearly one year ago. (A-2). Pursuant to the Order, the Bankrptcy Court approved the

MIP and all payments to employees contemplated thereunder, subject to the terms of the MI.
(A-2)

Promptly after entry of the Order, the Debtors implemented the MIP for the
benefit of their management employees. On July 31, 2006, the Debtors paid the aggregate sum
of $550,000 in accordance with the MI. See Declaration of James M. Fragnoli, submitted

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herewith. No other payments have been made, or wil be made, under the MIP. Id. Because the
MIP only applied to calendar year 2006, it is not only substantially consummated, it has expired

by its own terms. Compare Continental, 91 F.3d at 560-561 (the doctrine of equitable mootness

does not require complete consummation of the transactions contemplated by the order being

appealed, but only substantial consummation). Under these circumstances, this Court should
dismiss the appeal as moot.
3. A Reversal of the Order Would Prejudice Third Parties.

In its discussion of the equitable mootness factors, the Third Circuit considered
effects on third paries to be of great concern:

High on the list of prudential considerations taken into account by

courts considering whether to allow an appeal following a
consummated reorganization is the reliance by third parties, in
particular investors, on the finality of the transaction. . .. The concept of "mootness" from a prudential standpoint protects the

interests of non-adverse third paries who are not before the
reviewing court but who have acted in reliance upon the plan as
implemented.
Continental, 91 F.3d at 562 (citations omitted).

Unwinding the Order approving the MIP clearly would have a deleterious impact
on third paries who are not before this Court. The Debtors' employees relied on the MIP, they

dedicated themselves towards satisfying the obligations under the MIP, and they were paid the
aggregate sum of $550,000 to compensate them for achieving certain performance benchmarks
under the MIP. It would be paricularly inappropriate, and dangerously harmful to the estates, to
force employees to return the money that they eared (nearly one year ago) in reliance on the

MIP as implemented in accordance with the Bankrptcy Court's Order.

Simply put, the Debtors' employees should not be prejudiced for the Appellants'

lack of dilgence in pursuing this appeaL. Moreover, as addressed above, because the Debtors'
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employees are not paries to this appeal, it would be impossible as a matter of due process to
force them as par of this appeal to return the monies that they received under the MIP.
4. The Relief Appellants Request Would Undermine The Success Of The

Equitable Relief Granted By The Order.

By implementing the MI, the Debtors maximized the value of these estates by
incentivizing management towards certain operational goals. Even though not all such goals

were reached, the Debtors' estates benefited from having the MIP in place.

More importantly, overturning the MI at this late stage (nearly one year after the
last payments were made to employees) could have a disastrous effect on employee morale and
the Debtors' business. If the Debtors' key management employees were hypothetically required

to return the money that they eared under the MI (which is not even possible given that such
employees are not paries to this appeal), the Debtors could face a mass exodus of management
personneL.

The Debtors' employees relied on the MIP. They worked towards the objectives

under the MIP and they reached some of those goals. It is simply too late to undermine the
success of the MIP by allowing this appeal to proceed.
5. The Public Policy Of Fostering Reliance On Final Bankruptcy Orders

Strongly Supports Dismissal Of This Appeal.

The fifth and final factor in assessing equitable mootness is the "public policy"
favoring finality of bankrptcy judgments. As the Third Circuit explained:

(W)e should ask whether we want to encourage or discourage reliance by investors and others on the finality of bankrptcy
confirmation orders. The strong public policy in favor of

maximizing debtors' estates and facilitating successful
reorganization, reflected in the Code itself, clearly weighs in favor of encouraging such reliance. Indeed, the importance of allowing approved reorganizations to go forward in reliance on bankruptcy court confirmation orders may be the central animating force
behind the equitable mootness doctrine.
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Continental, 91 F.3d 553, 565; see also Box Bros., 194 B.R. at 42 (noting the "strong public
policy in proceeding with the implementation of the reorganization of a debtor in the federal
bankruptcy laws").

The public policy favoring finality of bankrptcy court orders is particularly
relevant to this case.

First, Appellants took no action whatsoever to prosecute this appeal over the last

year. Most notably, Appellants failed to seek a stay, despite the express provision in the Order
authorizing the Debtors to make payments to employees under the MIP.

Second, the Debtors were more than reasonable in relying upon the Order in

implementing the MI. The Debtors needed to get the MIP in place promptly to properly
incentivize their management employees to achieve certain operational objectives.

Third, all of the money at issue in this appeal has already been paid out to the
Debtors' employees, who are not paries to this appeaL. Hence, the res that is at issue in this

appeal is out of the hands of the Debtors' estates as of nearly one year ago.
To reverse the Order at this late stage would directly undermine the "central

animating force behind the equitable mootness doctrine": encouraging reliance on the finality of

bankruptcy orders. This is paricularly true given that Appellants had more than ample
opportunity to pursue a stay, and chose not to do so, thus setting in motion the very events that
make this appeal equitably moot.

13
DOCS_SF:54850.2

Case 1:06-cv-00521-GMS

Document 6

Filed 06/26/2007

Page 18 of 18

CONCLUSION
This appeal is moot on the basis of the doctrines of constitutional and equitable
mootness. The subject of this appeal -- the Debtors' MIP -- has already expired by its own

terms. All payments under the MIP have been made. And, most importantly, the employees

who received the money under the MI are not paries to this appeal, meaning that there is no

form of relief that could be granted in this appeal that could bring this money back to the
Debtors' estates. For the foregoing reasons, the Debtors respectfully request that this Court

dismiss this appeal on mootness grounds.

Dated: June 26, 2007

12 cf \/-air
Telephone: (302) 652-4100

PACHUSKI STANG ZIEHL YOUNG JONES & WEINTRAUB LLP

Laura Davis Jones (Bar No. 2436) Richard M. Pachulski (CA Bar No. 90073) Brad R. Godshall (CA Bar No. 105438) Maxim B. Litvak (CA Bar No. 215852) Rachel Lowy Werkheiser (Bar No. 3753) 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801)

Facsimile: (302) 652-4400 Email: ljones(gpszyjw.com
rpachulski (gpszyjw .com

bgodshall (gpszyjw .com

mlitvak(gpszyjw.com rwerkheiser(gpszyjw.com
Counsel for Appellees

14
DOCS_SF:54850.2

Case 1:06-cv-00521-GMS

Document 6-2

Filed 06/26/2007

Page 1 of 3

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
In re:

NELLSON NUTRACEUTICAL, INC., et aI.,
Debtors. UNITED STATES TRUSTEE AND THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS,

Appellants,
v.

Civil Action No. 06-520 (GMS) Civil Action No. 06-521 (GMS)

NELLSON NUTRACEUTICAL, INC., et aI.,
Appellees.

Bankptcy Case No. 06- i 0072 (CSS)
Appeal No. 06-45

AFFIDAVIT OF SERVICE

STATE OF DELAWARE )
COUNTY OF NEW CASTLE )
)SS:

Karina Yee, being duly sworn according to law, deposes and says that she is employed by the law firm of Pachulski Stang Ziehl Young Jones & Weintraub LLP, counsel for the Appellees, in the above-captioned action, and that on the 26th day of June, 2007, she caused a copy of the following document(s) to be served upon the attached service list(s) in the manner indicated:

Brief in Support of Appellees' Motion to Dismiss Appeal on Mootness Grounds

Sworn to a(clfimbscribed before

Karn6~~

r~~une,u
59903-002\DOCS _DE: i 28606.2

M- otary Pub/' . VANESSA A PRESTON

Notary Public i My C mm E1c: State of Delaware

My Commission Expires: 03-U-~ . Xpires March 21, 2008

Case 1:06-cv-00521-GMS

Document 6-2

Filed 06/26/2007

Page 2 of 3

Nellson Nutraceutical, Inc. Appeal Service List
Case No. 06-10072 (CSS)
Document No. 120478

02 - Interoffice Delivery 06 - Hand Delivery
05 - First Class Mail
(Counsel to the Debtors)

Hand Delivery (Counsel to Fremont Investors VII, LLC) Mark D. Collins, Esquire Richards Layton & Finger One Rodney Square 920 North King Street Wilmington, DE 19801
Hand Delivery
(Counsel to Informal Committee of

Laura Davis Jones, Esquire Rachel Lowy Werkheiser, Esquire Pachulski Stang Ziehl Young Jones &
Weintraub LLP

First Lien

919 North Market Street, 1 ih Floor P.O. Box 8705 Wilmington, DE 19899-8705

Lenders) Robert S. Brady, Esquire Young Conaway Stargatt & Taylor LLP The Brandywine Building
i 000 West Street, 17th Floor

Wilmington, DE 19801

Interoffice Mail
(Counsel to the Debtors)

Maxim B. Litvak, Esquire Pachulski Stang Ziehl Young Jones &
Weintraub LLP 150 California Street, 15th Floor

San Francisco, CA 94111

Hand Delivery (Counsel to UBS) Richard W. Riley, Esquire Duane Morrs LLP 1100 North Market Street, Suite 1200 Wilmington, DE 19801
Hand Delivery (Counsel to the Official Committee of
Unsecured Creditors)

Interoffice Mail
(Counsel to the Debtors) Richard M. Pachulski, Esquire Brad R. Godshall, Esquire Pachulski Stang Ziehl Young Jones &
Weintraub LLP

Kurt F. Gwyne, Esquire
Reed Smith LLP

10100 Santa Monica Boulevard, Suite 1100 Los Angeles, CA 90067
Hand Delivery (United States Trustee)

1201 Market Street, Suite 1500 Wilmington, DE 19801

First Class Mail
Wiliam Harrngton, Esquire Office of the United States Trustee J. Caleb Boggs Federal Building
844 N. King Street, Suite 2207
Lockbox 35

(Counsel to UBS) James J. Holman, Esquire Duane Morrs LLP 30 South 1 ih Street
Philadelphia, P A

First Class Mail
(Counsel to UBS) Gregory A Bray, Esquire Thomas R. Kreller, Esquire Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street, 30th Floor

Wilmington, DE 19801
Hand Delivery (Mediator) J. Richard Tucker, Esquire Maron Marvel Bradley & Anderson, P.A 1201 N. Market Street, Suite 900 Wilmington, DE 19801

Los Angeles, CA 90017

Case 1:06-cv-00521-GMS

Document 6-2

Filed 06/26/2007

Page 3 of 3

First Class Mail
(Counsel to Fremont Investors VII, LLC) Suzzanne Uhland, Esquire O'Melveny & Myers LLP
Embarcadero Center West

275 Battery Street San Francisco, CA 94111-3305

Fist Class Mail
(Counsel to the Ad Hoc Committee of

First

Lien Lenders)
Fred Hodara, Esquire

Akin Gump Strauss Hauer & Feld LLP 590 Madison Avenue New York, NY 10022

First Class Mail
(Counsel to the Official Committee of
Unsecured Creditors)

Claudia Springer, Esquire Reed Smith LLP 2500 One Liberty Place 1650 Market Street Philadelphia, P A 19103