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Showing 5 posts in Releases.

Delaware Bankruptcy Court Finds It Has Constitutional Adjudicatory Authority to Enter a Final Confirmation Order Containing Nonconsensual Third Party Releases

In re Millennium Lab Holdings II, LLC, No. 15-12284 (LSS), 2017 WL 4417562 (Bankr. D. Del. Oct. 3, 2017)

Following the United States Supreme Court’s ruling six years ago in Stern v. Marshall, 131 S. Ct. 2594 (2011), the constitutional adjudicatory authority of bankruptcy courts to enter final orders has been challenged in a variety of proceedings, leading to varied interpretations of the reach of the Stern decision.  In Millennium, the Delaware Bankruptcy Court was asked on remand from the Delaware District Court whether it had the constitutional authority to enter a final order confirming a plan that contained nonconsensual third party releases, i.e. releases of claims asserted by a non-debtor party against another non-debtor party.  While bankruptcy courts in the Third Circuit have consistently held that they have subject matter jurisdiction to consider nonconsensual third party releases and that such releases are permitted if the evidentiary record satisfies the standards set forth in Gilman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203 (3d Cir. 2000), and its progeny, the issue of a bankruptcy court’s constitutional authority to grant them with finality is a matter of first impression.  In a lengthy and detailed opinion in which the Honorable Laurie Selber Silverstein examined, among other things, the constitutional adjudicatory authority of bankruptcy courts since the United States Supreme Court’s decision in Northern Pipeline Construction Company v. Marathon Pipe Line Company, 458 U.S. 50 (1982), Her Honor answered the District Court’s question in the affirmative.  According to Judge Silverstein, bankruptcy courts possess the constitutional authority to enter a final order confirming a plan that contains nonconsensual third party releases.  Even if they do not, however, the Court found that the objecting party forfeited and waived its right to assert the Court’s lack of authority under the specific facts and circumstances presented.  All that remains now in this keenly watched matter is the inevitable appeal. Read More ›

Stern Requires More Than Subject Matter Jurisdiction, Bankruptcy Court Must Also Have Constitutional Adjudicatory Authority to Approve Nonconsensual Third-Party Releases in a Plan

Opt-Out Lenders v. Millennium Lab Holdings II, LLC, No. 16-110-LPS, --- F.Supp.3d ----, 2017 WL 1032992 (D. Del. Mar. 17, 2017) corrected and superseded by 2017 WL 1064997 (D. Del. Mar. 20, 2017)

In this Opinion, the United States District Court for the District of Delaware (the “District Court”) examines the bankruptcy court’s authority post-Stern v. Marshall, 131 S. Ct. 2594 (2011), to enter a final order releasing and permanently enjoining a non-debtor’s state law fraud and federal RICO claims against non-debtors absent consent.  Following two recent United States Supreme Court cases—Stern and Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015)—it is clear that parties have a constitutional right to have state law claims adjudicated by an Article III court.  “Despite the District Court’s general referral of bankruptcy matters to the Bankruptcy Court, the extent of the Bankruptcy Court’s adjudicatory authority depends on the type of proceeding before it and is subject to the bounds of [these] constitutional limitations . . . .”  Op. at 3.  For core proceedings (i.e., those that “arise under title 11” or “arise in a case” under title 11), bankruptcy judges can enter final orders.  When a matter is non-core (i.e., “related to” the bankruptcy case), however, absent consent of the parties, bankruptcy judges have authority only to hear the matter and submit proposed findings of fact and conclusions of law to the district court. Read More ›

Non-Consensual Third Party Releases Certified Directly to the Third Circuit

In re Millennium Lab Holdings II, LLC, No. 15-12284 (LSS), 2016 WL 155500 (Bankr. D. Del. Jan. 12, 2016)

[Update - Despite the Bankruptcy Court's ruling, the Third Circuit Court of Appeals denied the petition for direct certification in an order issued February 24, 2016.  The appeal will now head to the Delaware District Court.]

The Delaware Bankruptcy Court has granted direct certification of a hot-button issue surrounding confirmation of plans in bankruptcy to the Third Circuit Court of Appeals—namely, whether a bankruptcy court has the authority to release a non-debtor’s direct clams against other non-debtors without the consent of the releasing non-debtor. Read More ›

An Estate Release Does Not Preclude Tort Plaintiffs From Pursuing Direct, Particularized Claims Against Released Parties

In re Caribbean Petroleum Corp. et al., No. 10-12553 (KG), 2014 WL 3360563 (Bankr. D. Del. July 9, 2014)

In this Memorandum Opinion, the Honorable Kevin Gross held (i) that the Bankruptcy Court has post-confirmation jurisdiction to decide the extent and scope of releases contained in plans it considers and confirms and that (ii) the release at issue made by the debtors in favor of their former officers and/or directors did not prevent third-party tort claimants from pursuing their claims against such released parties.  In reaching its jurisdictional conclusion, the Court relied upon the Third Circuit’s holding in In re Resorts Int’l, Inc., 372 F.3d 154 (3d Cir. 2004), to overcome the fact that the dispute before it involved only non-debtors and had no conceivable effect on the bankruptcy estates.  Moreover, in deciding the extent and scope of the estate release, Judge Gross distinguished the Third Circuit’s recent Opinion in In re Emoral, Inc., 740 F.3d 875 (3d Cir. 2014), (analyzed here) to hold that the tort claims asserted against the released parties were personal and thus, not property of the debtors’ estates.  Accordingly, the claims could not have been released by the debtors.  Read More ›

Third Circuit Affirms Bankruptcy Court’s Excision of Inadequately Disclosed Third-Party Release From Plan of Reorganization

In re Lower Bucks Hosp., 2014 WL 2981215 (3d Cir. July 3, 2014)

In this Opinion, the Third Circuit held that non-consensual third-party releases were correctly severed from a proposed plan of reorganization because of significant disclosure deficiencies.  In doing so, the Court reminds all practitioners of a hallmark of plan drafting and solicitation—that “[k]ey terms of a plan of confirmation, particularly those that release a non-debtor from claims by creditors, must be adequately disclosed [and] [f]ailure to do so in a clear and conspicuous manner risks excision of the release from the plan.”  Because the releases at issue failed in “both presentation and placement,” excision was warranted and thus, the lower court’s decision to do so was affirmed. Read More ›