Third-Party Releases Under Continued Fire in E.D. Va. Decision
by | posted in: Bankruptcy, Bankruptcy Administration and Jurisdiction, Chapter 11, Third-Party Releases, Venue | 0

By Adam C. Harris, Douglas S. Mintz, Abbey Walsh, and Kelly (Bucky) Knight (Schulte Roth & Zabel)

Adam C. Harris

Douglas S. Mintz

Abbey Walsh

Kelly (Bucky) Knight

Earlier this year, a District Court in the Eastern District of Virginia vacated a Bankruptcy Court order confirming a plan that provided non-consensual third-party releases to certain of the debtor’s prepetition executives. This reversal followed on the heels of the Southern District of New York’s reversal of the Purdue Pharma plan, also on account of the inclusion of non-consensual third-party releases. As discussed in this article, these decisions may presage a growing willingness by Courts to curb the granting of these releases. The authors also provide practical considerations and takeaways from the decision for debtors, creditors and other estate constituents that are noteworthy.

The U.S. District Court for the Eastern District of Virginia vacated the confirmation order in the Mahwah Bergen Retail Group, Inc. (f/k/a Ascena Retail Group, Inc.) Chapter 11 cases on the grounds that the plan contained impermissible non-consensual third-party releases. While the Court did not find that non-consensual third-party releases are prohibited per se, it imposed stringent limitations on their availability and on the Bankruptcy Court’s ability to grant such releases if the scope of the release extends to non-bankruptcy claims. The Court attributed its ruling, in part, to the fact that the “ubiquity of third-party releases in the Richmond Division demands even greater scrutiny of the propriety of such releases.” The decision holds that third-party releases should be granted only “cautiously and infrequently” and sets up an onerous process for their consideration and approval, which may make many third-party releases practically unavailable, particularly if a plan seeks to release non-core claims.

Read the full article here.

A Few Predictions for Justice Gorsuch’s Bankruptcy Jurisprudence
by | posted in: Bankruptcy Administration and Jurisdiction, Bankruptcy Roundtable Updates | 0

By Megan McDermott (University of Wisconsin Law School)

The confirmation of a new Supreme Court justice offers opportunities to speculate about how his judicial philosophy will impact various areas of the law. Bankruptcy is no exception. Justice Gorsuch’s presence on the high court could have major implications for bankruptcy law.

Using Gorsuch’s published Tenth Circuit bankruptcy decisions, my essay examines how closely Justice Gorsuch’s approach is likely to overlap with that of his predecessor, Antonin Scalia. As I show in a forthcoming Utah Law Review article (here), Justice Scalia played a leading role in the Supreme Court’s development of modern bankruptcy law during his three decades on the court. In this sequel essay, I explain why Justice Gorsuch is well-poised to play a similarly important role, with two highlights.

First, I predict that Gorsuch may push the Court to revisit Stern v. Marshall, the blockbuster 2010 decision in which the Court rejected Congress’s efforts to give bankruptcy courts judicial powers beyond the bounds of Article III. If Judge Gorsuch’s decision in In re Renewable Energy Development Corporation, 792 F.3d 1274 (10th Cir. 2015), is a reliable indication of where he and the other justices he cites are leaning, we may soon see a new approach to the many Stern problems that bankruptcy judges have faced during the last decade. Under this new approach, the focus will shift away from the public rights doctrine and toward the framework of summary and plenary jurisdiction employed by the eighteenth century English bankruptcy system.

Second, Justice Gorusch may be more open to considering legislative history arguments than his predecessor. Justice Scalia routinely urged his colleagues to avoid references to legislative history. In stark contrast to this dogmatic approach, Gorsuch’s Tenth Circuit bankruptcy writings suggest some willingness to indulge arguments about legislative history of the Bankruptcy Code. Because so many of the bankruptcy appeals that the Court hears are, essentially, statutory interpretation questions, even this slight shift in interpretive approach could have significant repercussions for the field.

The full paper can be found here.