Background
In a highly anticipated decision issued on May 30, 2023, the Second Circuit Court of Appeals rendered its opinion in Purdue Pharma LP v. City of Grand Prairie (In re Purdue Pharma LP)1 approving a Chapter 11 plan’s inclusion of a nonconsensual release of creditors’ direct claims against non-debtor third parties.
This client alert describes the history of the case, identifies some of the key takeaways from the decision and outlines where other jurisdictions in the country stand on nonconsensual third-party releases.
When a federal court approves a [bankruptcy] plan allowing someone to put its hands into another person’s pockets, the person with the pockets is entitled to be fully heard and to have legitimate objections addressed.[Fn. 1]
Pop Quiz Question:
Does Insurer, in the following facts, have standing to object to Debtor’s Chapter 11 plan?
Debtor is in bankruptcy because of asbestos lawsuits.
Debtor proposes a Chapter 11 plan that is supported by all constituencies—except one:
The Bankruptcy Code’s Subchapter V provides hope to formerly successful entrepreneurs. It’s a hope that never before existed.
I’ll try to explain.
Formerly Successful Entrepreneurs – A Historical Problem
The Bankruptcy Code became effective in October of 1979. And I’ve been practicing under the Bankruptcy Code from the beginning: licensed in 1980.
Here’s an observation that’s been true throughout my career, until enactment of Subchapter V:
Bankruptcy Basics for New and Non-Bankruptcy Attorneys
This entry is part of Nelson Mullins’s ongoing “Bankruptcy Basics” blog series that is intended to address foundational aspects of bankruptcy for new and non-bankruptcy practitioners and professionals. This entry will discuss the general structure of bankruptcy claims and the differences between how unsecured, secured, and priority claims are treated in a bankruptcy case.
A “claim” against a bankruptcy estate is defined as a:
Is a debtor “engaged in commercial or business activities” for Subchapter V eligibility?
Such question has been addressed on many occasions and by many courts.
The trend seems to be toward a conclusion that the nature and quantity of “commercial or business activities” required for Subchapter V eligibility is this:
- Nature = “easily met”; and
- Quantity = “not much.”
The latest opinion to confirm the trend is In re Robinson, Case No. 22-2414, Southern Mississippi Bankruptcy Court (issued April 17, 2023; Doc. 90).
Hundreds and hundreds of claims for personal injury and property damage associated with PFAS contamination have been accumulating in the courtroom of a Federal Judge in South Carolina. A little over four years ago the Federal Judicial Panel on Multidistrict Litigation determined that Federal claims that Aqueous Film-Forming Foams (AFFF) containing PFAS used to fight fires had contaminated drinking water had enough in common that they should all be sent to Federal Judge Gergel in South Carolina for disposition.
Oral arguments occur on April 24, 2023, before the U.S. Supreme Court in Lac Du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, Case No 22-227. Here is a link to the oral arguments transcript.
What follows is an attempt to, (i) summarize the facts and issue in the case, and (ii) provide a sampling of questions and comments from the justices during oral arguments.
Facts
Here’s what happened:
Congress passed the operative texts without noticeable fanfare. From its enactment to today, section 363(k) has entitled a secured creditor to “credit bid” the full amount of the debt owed by a debtor in any sale of the underlying collateral pursuant to section 363(b). That this statutory bequest elicited little debate made imminent sense, for Congress had thereby codified one of secured creditors’ seemingly time-honored rights.
In August 1992, the largest indoor shopping mall in the continental United States opened to great fanfare in suburban Minneapolis, Minnesota. Dubbed the Mall of America (MOA), this sprawling retail center enjoyed 330 stores, anchored by retail tenants at the height of their reputations: Macy’s, Bloomingdale’s, Nordstrom, and Sears Roebuck and Co. (Sears).