A unanimous panel of the U.S. Court of Appeals for the Second Circuit has affirmed the dismissal of a suit by two creditors challenging the recent Chapter 11 reorganization of Charter Communications Inc., ruling that the challenge is equitably moot because the reorganization has already been substantially consummated.

Charter, the nation’s fourth-largest cable company, filed for Chapter 11 in 2009 with a prearranged reorganization plan. The plan was set up to avoid having to renegotiate its senior debt, which was held by JPMorgan Chase. One condition of Charter’s credit agreement was that its controlling shareholder, investor and Microsoft founder Paul Allen, would retain a 35 percent voting stake in the company. In order to induce Allen to hold onto his shares, even though their value would be wiped out by the bankruptcy, Charter and its junior bondholders agreed to a settlement that would give Allen $375 million.

Two major creditors—the Law Debenture Trust Company of New York, which acted as trustee for $479 million worth of notes issued by Charter, and R2 Investments Inc., a Charter shareholder—were not involved in the settlement and objected to the plan, saying that the benefit reaped by Allen was unfair to other creditors.

Bankruptcy Judge James Peck last year approved the reorganization plan, including the settlement. The dissatisfied creditors appealed, but Southern District Judge George Daniels dismissed the appeal under the doctrine of “equitable mootness,” which holds that a challenge to a bankruptcy plan is presumptively moot once the plan has been consummated.

The Second Circuit affirmed, ruling that, while the presumption of equitable mootness can sometimes be overcome, the Law Debenture Trust and R2 had “failed to establish that the relief they request would not affect Charter’s emergence as a revitalized entity and would not require unraveling complex transactions undertaken after the Plan was consummated.”

Judges John Walker Jr. (See Profile), Gerard Lynch (See Profile) and Raymond Lohier Jr. (See Profile) sat on the panel in In re Charter Communications, 11-1710-bk, 11-1726-bk.