In re UAL Corp. (412 F.3d 775, 2005)

EASTERBROOK, Circuit Judge.

When United Airlines entered bankruptcy in December 2002, workers owned slightly more than half of its stock through an Employee Stock Ownership Plan. Fearing that the ESOP might sell this stock and that the Internal Revenue Service would deem the sale a change of control, which might jeopardize United’s ability to use net operating losses as tax deductions in future years, see 26 U.S.C. § 382, United asked the court to forbid sales by the ESOP. Chief Bankruptcy Judge Wedoff granted this motion on the date the bankruptcy began and continued the injunction after a hearing two months later. The court did not require United to post a bond to protect the ESOP against loss (compare Fed.R.Civ.P. 65(c) with Fed. R. Bankr.P. 7065) or direct United to provide “adequate protection” of the investors’ interests under 11 U.S.C. § 362(d)(1). State Street Bank and Trust Company, the Trustee of the ESOP, did not ask the district court (or this court) to require security or adequate protection, though it did file an appeal that lingered on the district judge’s calendar for almost two years.

While that appeal was pending, the IRS issued a regulation that permits ESOPs to pass shares through to the employees, who may hold or sell them without jeopardizing the issuer’s ability to use loss carry-forwards to offset future profits. 26 C.F.R. § 1.382-10T. United terminated the ESOP on June 27, 2003, and the Trustee distributed the shares to their beneficial owners, who have since been entitled to hold or sell as they please. The bankruptcy judge’s injunction lapsed — it was not formally vacated, but the ESOP it addressed had ceased to exist, so it no longer had any effect. United asked the district judge to dismiss the proceedings as moot. Surprisingly, the judge brushed aside that request and proceeded to affirm on the merits. The Trustee has appealed — though its brief does not explain what relief we could afford given the ESOP’s termination — and United has renewed its mootness argument.

Responding to United’s position, the Trustee concedes that the underlying dispute was resolved in July 2003 by the shares’ distribution to individual investors. Nonetheless, the Trustee contends, the dispute is live because the investors deserve compensation for the loss they suffered between the time of the bankruptcy court’s order (when United’s stock traded for $1.06 per share) and the dissolution of the ESOP (when the market price had fallen to 76c per share). Although the price has since risen (it was $2.02 the day before this appeal was argued), that gain is independent of the litigation: anyone who thought United a good investment could have purchased its stock in the open market. The injury was suffered by those who thought it a bad investment and sold as quickly as they could in June 2003; they lost 30